March 2024:

• Aviation business news: Airnguru completes $1m funding round to drive growth and innovation

• Airline Economics: Airnguru secures $1 million in pre-series A funding

• Travel Daily News: Airnguru secures $1 million investment to help airlines boost profits

• Travelisthenewclub: Airnguru secures $1 million investment to help airlines boost profits

• AeroXplorer LinkedIn: Chilean technology provider Airnguru.com has raised $1 million in pre-Series A funding to provide pricing solutions to airlines.

• Weekly Tech Update: LatAm Tech Weekly

• PhocusWire: Chilean-Based Tech Provider Airnguru Raises $1M

• Skift: 3 Companies Modernizing Air Travel: Startup Funding Roundup

• The SaaS News: Airnguru Raises $1 Million in Pre-Series A

• Finsmes: Airnguru Raises USD$1M in Pre-Series A Funding

• Startups Magazine: Airnguru secures $1 million investment to help airlines boost profits

• Startup Valley: Airnguru secures $1 million investment to help airlines boost profits

• Infotur Latam: Startup Airnguru obtiene US$ 1 millón para que aerolíneas eleven beneficios

• Startups Latam: Un software para que las aerolíneas fijen sus precios a través de soluciones de inteligencia de precios y automatización.

• Tom: Airnguru lève 1 million de dollars pour aider les compagnies aériennes à optimiser leurs revenus complémentaires

Febuary 2024:

• TravelMole: Airline pricing firm Airnguru partners with Qatar Airways

• Travel2Latam (en): Airnguru partners with Qatar Airways to offer the best pricing solutions

• Travel2Latam (es): Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• ravel2Latam (po): Airnguru faz parceria com Qatar Airways para oferecer as melhores soluções de preços

• AeroErmo: Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• BookFlyStay: Airnguru secures partnership with Qatar Airways for best-in-class pricing solutions

• Aviation Business News: Qatar signs software deal with Airnguru

• Airline Economics: Qatar Airways inks five-year pricing software deal with Airnguru

• Travel Daily News International: Airnguru secures partnership with Qatar Airways for best-in-class pricing solutions

• DFMas: Software para aerolíneas firmó contrato con Qatar Airways y cerró ronda de US$ 1 millón

• Pasillo Turistico: Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones

• Infotur Latam: Qatar Airways y Airnguru ofrecerán las mejores soluciones de precios

• Europa Press: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• MSN: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• Forbes España: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• America economia: Startup chilena Airnguru une fuerzas con Qatar Airways para ofrecer mejores soluciones de precios para aerolíneas

• Bolsmania: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• Qoshe: Startup chilena Airnguru une fuerzas con Qatar Airways para ofrecer mejores soluciones de precios para aerolíneas

• La Nacion: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• CDC (Crónica de Cantabria): El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• ECD: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• Press Digital: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• Notimerica: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• Negocios TV: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• Norbolsa: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• Siglo XXI: El software chileno Airnguru se asocia con Qatar Airways para ofrecer las mejores soluciones de precios

• Airnguru raises $1 million USD in pre-Series A funding to deliver best-in-class pricing solutions for airlines, helping them increase revenue and profits.

• The Chilean tech provider aims to acquire new airline clients and achieve operational break-even by the last quarter of 2024.

• The investment solidifies Airnguru’s position as a one-stop-shop for pricing intelligence, fare management, and price automation solutions.

Santiago, Chile, February 12, 2024 – Airnguru – a leading provider of pricing intelligence and execution, fare management, and price automation solutions for airlines – today announced it has raised $1 million USD in pre-Series A funding to deliver best-in-class pricing solutions for airlines.

The Chilean-based technology provider – which has more than doubled its annualized recurrent revenue in the last 12 months – aims to build a robust, global customer base for its core pricing solutions, as well as achieve operational break-even by the last quarter of 2024.

Founded in 2015, Airnguru’s innovative solutions are trusted by leading global carriers Qatar Airways and British Airways (IAG), along with a growing roster of forward-thinking airlines including Avianca, Copa Airlines, LOT Polish Airlines, Finnair, and SKY Airline.

Sergio Mendoza, CEO and Co-Founder of Airnguru, said: “We’re delighted to have successfully completed a $1 million USD funding round, a testament to Airnguru’s commitment to helping airlines unleash their full potential to maximize profits, productivity, and innovation.”

“This capital injection will further empower us to expand our client base and solidify our position as a one-stop-shop provider of pricing intelligence and execution, fare management, and price automation solutions to some of the world’s largest carriers.”

Airnguru’s best-in-class, cloud-native pricing solutions help airlines increase profits by optimizing their pricing strategies, thus boosting their productivity with high-frequency, 100% market coverage and enhanced insights. The company’s SaaS (software-as-a-service) solutions substantially reduce time-to-market via price automation, preventing price distribution errors and streamlining the pricing processes from inception to completion.

The new investment will not only fortify Airnguru’s existing offerings but also expedite the development of new transformative solutions, including its ABM Simulator for strategy optimization and a new suite for ancillary price optimization and management.

The successful funding round saw the participation of a group of angel investors formed by senior executives, board members, family offices, and entrepreneurs.

EDITOR’S NOTES

About Airnguru

Founded by hands-on experts in airline Revenue Management, Data Science, and Big Data, Airnguru is a leading provider of best-in-class airline pricing technologies. Our solutions empower analysts to design, optimize, and execute pricing strategies, enhancing productivity, and boosting airline profits.

Airnguru takes a holistic approach to pricing processes, seamlessly integrating all teams and departments involved in pricing decisions. Through our highly configurable pricing workflow, we streamline and automate processes from inception to completion, ensuring a cohesive and efficient pricing strategy. Our unique value proposition is sustained by a cloud-native tech stack encompassing Big Data, automation, Machine Learning, A/B testing, simulation, and optimization.

Airnguru is the preferred choice for eight international airlines across three continents that benefit from our innovative technology and superior service, including two of the world’s largest carriers, Qatar Airways and British Airways (IAG). Our esteemed customer list also features Avianca, Copa Airlines, LOT Polish Airlines, Finnair, SKY Airline, and a significant partnership we will announce soon.

For more information about Airnguru and our transformative solutions, please visit www.airnguru.com.

Contacts

Roman Townsend, Managing Director, Belvera Partners - rtownsend@belverapartners.com

Balint Brunner, Account Manager, Belvera Partners - bbrunner@belverapartners.com 

Javier Jiménez

Airnguru

+569-39366636

javier@airnguru.com

Airnguru Secures Partnership with Qatar Airways for Best-In-Class Pricing Solutions

Renowned Middle Eastern airline taps into Airnguru's pricing intelligence, price execution, and price automation solutions to optimize pricing strategies and enhance processes.

Santiago, Chile, February 6, 2024 -- Airnguru, a leading provider of pricing intelligence, price execution, and price automation solutions for airlines, today announced a 5-year SaaS deal with Qatar Airways, a world-class airline and seven times winner of the SKYTRAX Best Airline in the World award. This partnership aligns with Qatar Airways' strategic pursuit of accelerating innovation and unlocking substantial efficiencies and revenue opportunities.

Airnguru's innovative solutions offer near-real-time data analytics and automated pricing recommendations, enabling quick, informed, and scalable decision-making. The benefits include reduced time-to-market, eliminating price distribution errors, substantial productivity increases, and revenue growth, allowing Qatar Airways to remain efficient and deliver unmatched offers to its customers.

Javier Jiménez, COO and co-founder of Airnguru, expressed his delight at the partnership, stating, "This deal represents the happy culmination of a long and persistent effort to build the best-in-class airline pricing suite. Our platform will provide Qatar Airways with the tools they need to maximize revenue and stay ahead of the competition."

"Airnguru supports tasks digitization, which enables the consolidation and streamlining of our pricing processes to drive speed to market advantages through new pricing capabilities. Qatar Airways is committed to delivering exceptional service and value to our customers, and the business has various key international partnerships, such as Airnguru, which help us deliver upon our strategy", said Matthew Mcgilvray, SVP Revenue Management and Strategic Alliances at Qatar Airways.

"This is an exciting time for Airnguru; we are thrilled to be working with Qatar Airways," said Sergio Mendoza, CEO and co-founder of Airnguru. "We are committed to delivering outstanding value and superior service to our customers. With our support, Qatar Airways is well positioned to boost innovation in pricing and set a new standard for excellence in this high-impact business area."

About Airnguru

Founded by hands-on experts in airline Revenue Management, Data Science, and Big Data, Airnguru is a leading provider of best-in-class airline pricing technologies. Our solutions empower analysts to design, optimize, and execute pricing strategies, enhancing productivity, and boosting airline profits. 

Airnguru takes a holistic approach to pricing processes, seamlessly integrating all teams and departments involved in pricing decisions. Through our highly configurable pricing workflow, we streamline and automate processes from inception to completion, ensuring a cohesive and efficient pricing strategy. Our unique value proposition is sustained by a cloud-native tech stack encompassing Big Data, automation, Machine Learning, A/B testing, simulation, and optimization.

Airnguru is the preferred choice for eight international airlines across three continents that benefit from our innovative technology and superior service, including two of the world’s largest carriers, Qatar Airways and British Airways (IAG). Our esteemed customer list also features Avianca, Copa Airlines, LOT Polish Airlines, Finnair, SKY Airline, and an upcoming significant partnership.

For more information about Airnguru and our transformative solutions, please visit www.airnguru.com.

On September 26, 2023, during the World Aviation Festival in Lisbon, our COO, Javier Jiménez, presented "Unleashing the Potential of Ancillary Optimization and Bundle Upsell through AB Testing." We discussed this exciting topic and how it can benefit airlines. You can download the presentation materials here If you're interested in exploring the intricacies of our ancillary optimization solution or considering its integration into your specific systems architecture, please feel free to reach out to us at: contact@airnguru.com.

We are thrilled to announce a cutting-edge development in the world of airline pricing! Airnguru, in collaboration with Piano, has launched a dynamic pricing engine for bundle and ancillaries, forging an innovative partnership with SKY Airline. ✈️

This powerful tool marks a significant step forward in the aviation industry, harnessing the power of automated A/B testing technology to optimize total revenue and offer airlines unprecedented control over their pricing strategies. With this solution, airlines can test various bundle discounts, extract conversion probabilities, and optimize expected revenue with continuous updates and adjustments.

Our partnership with SKY Airline, set to begin a live pilot this month, is an exciting testament to our commitment to technological advancement and innovation in the airline industry. Want to know more about this revolutionary project? Dive into the details and discover how we're reshaping the future of airline revenue management.

Read the full press release here

Join us on this exciting journey, and stay tuned for more updates on how Airnguru continues to innovate and lead the way in airline pricing solutions!

On Wednesday, June 7th our COO, Javier Jiménez, presented at AGIFORS in Helsinki -sponsored by Airnguru- advances in our new track on bundle & ancillary revenue "Optimizing Airline Revenue with Dynamic Bundle Pricing: A Collaborative Solution by Airnguru and Piano". Download the presentation here: <here>. If you want to find out more about this new solution, please do not hesitate to contact us here: https://www.airnguru.com/book-online

PRESS RELEASE

FOR IMMEDIATE RELEASE: May 9, 2023

Javier Jiménez, COO

Airnguru

javier@airnguru.com

Airnguru Launches New-Gen Automation & Orchestration Engine "Pantheon" to Revolutionize Airline Commercial Strategies

Powerful new tool increases productivity and dramatically reduces time-to-market for airlines

Santiago, Chile, May 5, 2023. Airnguru announced the launch of Pantheon, a groundbreaking automation engine that empowers airlines to orchestrate and scale their commercial strategies. Pantheon handles all necessary connectivity to the airlines' ecosystem, integrates all inputs, distributes all outputs to legacy or new-gen instances, and securely hosts and protects the airlines' proprietary algorithms that reflect their strategy.

Thanks to a collaboration with Avianca, the second-largest airline in Latin America, Pantheon is not just an idea but a proven solution. The first high-impact use case for Pantheon is the automation of reactive pricing. After running this use case for a couple of months, the results have been astonishing: a 70% overall reduction (and a 90% reduction in their domestic markets) in the airline's time to react to competitors' price actions ("TTM" or time-to-market). Over a time window of 14 weeks, the ratio of Avianca's TTM over their main competitor's dropped from 150% to 45%.

In the words of Javier Jiménez, COO and co-founder of Airnguru: "Pantheon is a game changer in this industry where most airlines share the same algorithms and tools, and those tools do not scale but consume most of the time of smart analysts performing tedious tasks. Pantheon is a first-of-its-class strategic orchestrator that offers a new level of automation and has been a vision for several years. Now it is finally producing high-impact results for one of our customers."

Rodrigo Rioseco, VP of Revenue Management of Avianca, said, "We are very enthusiastic about this collaboration. Airnguru has been a great partner for innovation because they know how to execute in the complex airline industry. The travel demand is back at full intensity. Thanks to Pantheon, the productivity of our Pricing teams has risen substantially. Most importantly, one of our key performance metrics, the time-to-market, has improved dramatically, positively impacting market leadership, price positioning, and revenue."

The pandemic deeply impacted airlines; they lost a significant part of their revenues and a substantial portion of their talent, now working elsewhere. According to Sergio Mendoza, CEO and co-founder of Airnguru, "Travel demand is back, but it will take time for airlines to rebuild their talent to the pre-pandemic levels. That is why Pantheon is such good news for airlines. Pantheon not only boosts airlines' productivity but also supports commercial innovation securing backward compatibility. We are seeing much interest from airlines to try this new technology, and we are thrilled to be able to contribute to their productivity and competitiveness."

About Airnguru

Founded in 2015 by airline revenue management and big data experts, Airnguru is a cloud-native provider of commercial systems that helps airlines optimize their pricing strategies. Airnguru launched the first comprehensive pricing intelligence solution in the market in 2017, and since then, it has quickly positioned its airline pricing technology as best-in-class. Offering a broad suite of solutions across pricing intelligence, price execution, and price automation, Airnguru has already added six international airlines to its customer list, which are benefiting from its innovation to boost their productivity, minimize their time-to-market, eliminate pricing errors, optimize their pricing strategies and increase their revenue. You may find more information about Airnguru at www.airnguru.com.

About Avianca

AVIANCA includes Avianca -Star Alliance member-, LifeMiles and Avianca Cargo. In passenger transportation and with more than 103 years of continuous operation since 1919, Avianca is the leading airline in Colombia, Ecuador, Central America and has one of the largest airline operations in Latin America with 130 routes, 3,800 weekly flights and a fleet of more than 130 Airbus 320 and Boeing 787 Dreamliner aircraft, connecting to around 70 destinations in the Americas and Europe. More than 11,9 million members and 450 allied brands are part of its loyalty program, LifeMiles, one of the largest in the region. In cargo transportation, Avianca Cargo is a leader in the region and is the main airline in different markets in the Americas. It serves more than 50 destinations with a fleet of Airbus A330 freighters, along with its operation of passenger aircraft bellies. More information is available at www.avianca.com

This new collaboration marks a significant step in Airnguru's journey to revolutionize the airline industry with its advanced pricing solutions.

Javier Jimenes, COO and Cofounder of Airnguru, shared his excitement about the partnership: "We are thrilled and honored that Finnair has chosen Airnguru as its provider of pricing intelligence and automation solutions. With our support, Finnair is poised to elevate its pricing processes, enhance team productivity, and gain sustainable competitive advantages. This collaboration underscores our commitment to providing superior service and innovation in the airline industry. Finnair's decision to partner with us, becoming the second one world member and the third European airline to do so, is a testament to the trust and value our solutions offer."

Alson D'Britto, Senior Manager Offline and Price Distribution at Finnair, commented on the partnership: "We have chosen Airnguru because of their clear vision and understanding of our needs. We envision a fruitful innovation partnership moving forward."

Airnguru looks forward to a successful partnership with Finnair, helping them to optimize their pricing strategy and achieve new heights in operational efficiency and customer satisfaction.

About Airnguru

Airnguru is at the forefront of providing innovative pricing intelligence, execution, and automation solutions to the airline industry. Our advanced technology and expertise enable airlines to differentiate their strategies and excel in an increasingly competitive market.

#promotion #promotionalcampaign #pricing #priceoptimization #revenuemanagement

Why use promotions?

Promotions are a very powerful business tool and can be tremendously important in driving growth when demand is affected by a downturn or other factors. However, there are legitimate questions that arise when discussing a promotional strategy:

What long-term effects can promotions have?

What are the key factors in defining a promotion to make it profitable?

How good an idea is it to maintain a promotional program and eventually get consumers used to waiting for promotions to buy?

Wouldn't we be better off always securing a low price and positioning that in the minds of our customers, rather than frequently raising and lowering prices?

Do we gain anything by running promotions if the competition does the same?

Depending on a number of conditions and variables, including desired price positioning and some industry and market characteristics, promotions can be a good or a bad idea, and can be profitable or unprofitable.

What objectives can a promotion fulfill?

In the context of this discussion, we consider a promotion to be a proactive Pricing action, accompanied by advertising, limited in time and inventory, that offers attractive prices with respect to consumers' expectations. Promotions are carried out with several possible objectives, among which we highlight three:

1. Launching

Every business that introduces a new product or service to the market has the need to make it known, to "launch" the product so that potential customers learn of its existence, try it, get to know it, and give an initial boost to demand, thus shortening the period until the break-even point of the business is reached.

2. Sale

When we have perishable inventory (e.g. food or seasonal clothing) that we foresee that we will not be able to sell before its expiration date at the current price, we have several possibilities, among which we highlight: (1) store the remainder in a warehouse or destroy it, (2) donate the remainder before its expiration, and (3) try to sell it at an attractive price to accelerate demand before its expiration.

3. Stimulation

When we enter a "low" season (in seasonal businesses), or when demand declines for some other reason (arrival of a new competitor, weakening economy, etc.), businesses usually seek to stimulate sluggish demand by running promotions.

Can promotions produce added value?

In the long term, the value of promotions as a structural strategy for a business should be evaluated according to its desired price positioning, the industry's own characteristics and the market context. An industry with high fixed costs and stimulable, seasonal demand will probably find long-term value in a structural promotions strategy for seasons of low industrial demand. On the other hand, if industrial demand is relatively inelastic we would challenge the value of a structural promotions strategy, and it may be responding to a suboptimal competitive dynamic (prisoner's dilemma) rather than a positive-sum strategy. Between these two extremes there is a wide range of possibilities.

Given the right structural conditions in an industry, promotions can definitely produce added value for the business. However, to accomplish this requires a relatively rigorous process of

(1) Planning ==> (2) Execution ==> (3) Measurement ⇒ (4) Learning.

1. Good planning establishes the investment budget, the scope of the promotion, the assumptions and hypotheses of demand behavior, and the expectations of results and profitability of the promotion.

2. Good execution ensures that the parameters under our control perform as planned and that we deliver on our promise to the customer.

3. Rigorous measurement tells us whether or not the promotion was successful: how well we executed it, how far we strayed from the sales, margin and profitability budget, how much we deviated from the assumptions underlying the budget, how customers felt about it, what impact it had on customer loyalty, and so on.

4. Learning is key to establish best practices within the organization, adjust the parameters and assumptions of our promotional planning models, and establish a process of continuous improvement that allows us to make promotional activity a successful tool.

What variables should we consider for a promotion?

Critical variables to consider when planning and executing a promotion should at least include:

Promotion Parameters

Promotion parameters are the levers the business has control over to generate the desired impact:

• list of products to be included;

• discount on normal price;

• volume of inventory to be made available;

• start date and deadline;

• sales channels to be included;

• amount of investment in advertising media;

• amount of investment in extraordinary logistics, administration and operating costs;

Promotion Assumptions

The underlying assumptions, i.e., those variables that are not under the direct control of the business but that will directly impact the outcome of the promotion, are key in modeling the promotion, performing ex-ante sensitivity analyses and setting the promotion parameters:

expected base sales (i.e., without promotion) of impacted products during and after the promotional period;

• base sales of substitute products during and after the promotional period;

• base sales of complementary products during and after the promotional period;

• price elasticity of direct demand for promoted products;

• price elasticity of indirect demand for complementary products;

• cross-price elasticity of demand for substitute products;

• reactions of competitors;

The Yield Management (or Capacity Optimization) analyst within the Revenue Management area should forecast the demand expected without the promotion, setting the "base" sales levels for the promotion period and during a certain post-promotion period. These base sales levels becomes the references for the ex-post evaluation of the promotion.

On the other hand, determining the elasticities is typically the task of the Pricing analyst within the Revenue Management organization (sometimes both functions, Pricing, and Yield Management, are performed by the same person). The Pricing analyst uses statistical, econometric, Machine Learning, and or simulation tools to model demand as a function of price and foresee the impact of price changes.

Budget

The budget establishes the ex-ante expectations of the business regarding the results of the promotion and, in short, both the profitability of the promotion and the qualitative benefits. The budget should include at least:

• amount of money to be invested in advertising;

• amount to be invested in logistics, administration and exceptional operations;

• expected incremental sales (units and $) of the products being promoted during and after the promotion;

• expected loss of sales of substitute products;

• expected carryover sales of complementary products;

• expected net incremental contribution margin ($);

• ROI of the promotion;

The challenge here lies in being able to estimate these quantities correctly, considering the complex repercussions that a promotion has on direct and indirect, present and future demand.

Promotion Results

The promotion results reflect the impacts of having executed the promotion. We should include all measurable cannibalization effects. Promotion results shall include the direct impact on demand (sales, revenue, margin) for the promoted products and the indirect impact on demand for substitute and complementary products. Similarly, we should measure the effect on the sales channels where we promote and on those where we don't. In addition, we must calculate the impact of the promotion execution on customers. The results should include at least:

• Variation in sales (units, revenues and contribution margins) of the promoted products during the period of the promotion with respect to the base sales levels;

• Anticipated future sales of the promoted products (alternatively include a post-promo period in the analysis to account for this effect)

• Impact on sales, revenue and contribution margin of complementary products;

• Impact on sales of substitute products (same and different brands);

• Incremental contribution margin;

• ROI of the promotion;

• Impact on customer sentiment and loyalty;

How to proceed?

If you would like to have a conversation about the use of promotions in your business, and how systematic processes, supported by analytical models, simulation, machine learning, automation and/or other Revenue Management tools can help you make better decisions in the specific context of your industry, leave us your contact details here to arrange a meeting:

https://www.airnguru.com/contact-us

or write us directly at:

contact@airnguru.com

#priceoptimization #revenuemanagement #segmentation #rebound #farestructures #faremanagement #consumerbehavior #pricing

Abstract: The COVID pandemic disrupted the airline industry, substantially changing consumers' purchase and travel patterns. Here we briefly discuss the impacts of such changes on Revenue Management processes, the urgent need for refreshing our understanding of consumer behavior and suggest strategies to adapt to a quickly evolving new scenario.

1. What to expect for the rebound

Government-enforced border restrictions, fear of infection when traveling, quarantine requirements, and other mobility restrictions enforced by law or self-imposed across society as a whole, are each enough to explain why air travel was almost extinguished during the COVID pandemic.

The general expectation though is that freeing travelers and airlines from the severe restrictions that have been imposed around the world would bring back travel volumes to pre-pandemic ones. In fact, a brief survey over your list of family and friends will most likely reveal that a relevant proportion of leisure travelers is eager to be able to travel again, go to beaches, visit relatives or friends abroad, leave home for a while, and take a real vacation. People are tired; many are burned out. Some have benefited from home-office by improving their quality of life -for example, moving to a more convenient or more comfortable location to live and work remotely-, however, home-office with long days in front of computer screens has taken a toll on many.

We should also consider that lifting pandemic restrictions will incentivize touristic destinations and surrounding industries to invest and bet on the recovery of the demand for leisure travel. For many countries, the travel & tourism industry represented a substantial employment generator and a significant fraction of their GDP (typically between 5% and 20% for the largest economies), so we expect those countries to proactively favor its recovery.

On the other hand, COVID restrictions forced corporations to move from traveling for in-person meetings and industry conferences to performing all meetings online. Most corporations and small companies learned and adapted to remote working. Virtual meeting technology provided tremendous support for this profound, forced transformation of labor and human interactions during the pandemic. Some of this behavior will most likely survive after COVID (for the sake of corporate efficiency and productivity!). Still, meeting face-to-face to start and develop productive relationships with customers and partners will hardly be equaled by online meetings, so those businesses that resume key face-to-face meetings will have a commercial advantage over those that don’t.

In summary, it seems reasonable to expect a fast post-pandemic recovery of leisure travel demand even beyond pre-pandemic levels and a slower, partial recovery of business travel demand. By "post-pandemic," we mean the first three years after governments lift most restrictions that limit travel. After the post-pandemic period, assuming no other extraordinary circumstances, the travel industry's growth should primarily depend on overall economic growth again.

2. Evolving demand behavior

In this highly restricted, risky, uncertain context, travelers feel, reason, and prioritize very differently than they did before the pandemic. Consequently, the pandemic has substantially changed consumers' purchasing and traveling behaviors.

Airlines, hotels, and travel agencies have observed substantial fluctuations in booking anticipations, lengths of stay at destination, and customers' needs for flexible change conditions for booking dates, destination, and ticket or booking cancellations.

But the pandemic also affected consumers' shopping behaviors, the consumers' willingness-to-pay (and therefore the demand price-elasticity), the ratios of group bookings over individual bookings and of business over leisure bookings, the preferences for ancillaries, and more.

Consumers' feelings and behaviors will likely keep evolving quickly through the rebound and post-pandemic periods. And, it wouldn't be surprising to observe some residual behavioral changes after the post-pandemic period.

3. Segmentation obsolescence

Airlines' Revenue Management strategies rely on good demand segmentation. Airlines perform demand segmentation on consumers' purchase and travel behaviors and preferences. Demand segmentation is considered part of the Pricing function. Demand segmentation is a key input to product and service segmentation, which defines the set of offers that airlines may present to their customers. Basically, product segmentation mirrors demand segmentation. Fare structures and their components, the fare fences, and fare rules, and the way they are organized in fare families or brands with associated value attributes and price levels, are at the foundation of airlines' product segmentation and aim at maximizing revenue share by capturing consumers’ willingness-to-pay.

If the segmentation were “perfect,” the airline would get its “fair revenue share,” that is, its “fair market share” out of every demand segment from the highest willingness to pay down the demand curve till it fills its capacity. If the airline brand were also “perfect,” i.e., the airline’s brand was the preferred one by every consumer, the airline would fill its capacity capturing every consumer with the highest willingness to pay down the demand curve till completing its seat capacity.

A core assumption made by airlines’ Revenue Management teams is that aggregate travelers’ behaviors are relatively stable, so demand segmentation could be considered relatively static over time. This assumption is broken now due to the profound disruption caused by the pandemic. And this is not a minor problem: the contribution of product segmentation represents a substantial fraction of the total contribution of Revenue Management, especially when load factors are low and consequently, the relative benefit of Yield Management diminishes.

So, though second to the dramatic effect of overall demand contraction, the quick evolution of consumer preferences and behaviors mentioned above, if not incorporated timely in the demand segmentation and, therefore, if not timely recognized in the airline’s product segmentation and price optimization, may also be having a significant detriment on revenue.

The damage caused by the effect of segmentation obsolescence is reflected as a series of gaps in the process: lack of product granularity, dilution caused by overly relaxed fare fences and/or too low prices, spill caused by excessively restrictive fare fences and/or too high prices, etc.

Another significant headache for Revenue Management practitioners is the obsolescence of demand forecasts, on which Yield Management heavily relies for the purpose of inventory optimization. With unprecedented demand contraction and volatility, on top of evolving consumer behaviors, error rates of demand forecasts have substantially increased, leaving them useless. Thus, the pandemic disrupted the legacy inventory optimization process. A weakened Yield Management lever reinforces the need for a more robust Pricing lever. (See our previous discussion on forecasting in highly uncertain contexts: Simu-casting: around and beyond forecasting.)

4. How to tackle these challenges

Under evolving consumer behavior and preferences, airlines should revisit the legacy segmentation process. A first reasonable approach is to increase the frequency of the segmentation process enough to re-capture the behavioral evolution on a regular basis. At the same time, airlines should search for and evaluate new potential segmentation variables that were disregarded or unavailable in the past. Such variables may now be relevant in understanding consumers’ preferences and willingness to pay. Data gathering and processing and unsupervised Machine Learning techniques for clustering purposes are now much easier to implement and frequently execute than they used to be not long ago, thanks to the fast evolution of cloud services.

Willingness-to-pay should also be re-estimated on a more frequent basis, as airlines need to understand price-elasticities associated with the new demand segments, and these elasticities will keep evolving through and beyond the pandemic as well.

Product segmentation shall be revisited consequently with the same frequency as demand segmentation, aiming at improving fare structures, including fare rules and fences, fare levels, and brand attributes, aligning them to the updated demand segmentation and re-estimated willingness-to-pay.

The additional efforts to set up this new process would be increasingly profitable for airlines as traffic comes back to pre-pandemic volumes. This machinery would not only become a powerful tool for RASK growth over the years to come, but it may also become an essential building block for future Offer Management systems

(see Dynamic pricing of airline offers.)

5. How to move forward

If you want to explore and discuss ideas on updating the segmentation process and optimizing fare structures, and the tools required to support such tasks, we would be very happy to share with you our vision and experience in the airline industry and beyond.

Leave us your contact details in order to coordinate a conversation (no strings attached!):

https://www.airnguru.com/services/

or write us here:

contact@airnguru.com

A unique, top-down philosophy

LOT Polish Airlines, the flag carrier of Poland, contracted Airnguru solutions aiming to leap forward in pricing insights, productivity, and accuracy. Among many other benefits, the partnership will help LOT spot emerging market patterns and generate comprehensive, timely, and actionable views of its competitive position and pricing opportunities.

By signing this new agreement, the Polish airline will also improve its Revenue Management processes by feeding in more accurate prices and increasing productivity via automation of non-strategic, time-consuming tasks allowing Pricing Analysts to focus on market management in the post-COVID-19 changing reality. And, thanks to Airnguru's agile innovation process, tackling new trends like the increased opacity of airline pricing will now be smoother.

A fresh approach to pricing with cutting edge technology

"We are very excited about Airnguru as our new solutions partner. Airnguru has brought an innovative and fresh approach to pricing, and they have deeply empathized with our pains. They understand the airline business from the inside and have suffered the airlines' headaches as users themselves. They are now helping LOT overcome those pains with full understanding of LOT’s market position, continuous innovation, superior user experience and automation", comments Tomasz Penczek, Director of Revenue Management, Pricing, and Distribution at LOT.

About Airnguru

Airnguru is a cloud-native vendor of airline solutions formed by Revenue Management and Big Data experts that has quickly positioned its airline pricing suite as best-in-class. Its unique top-down approach to pricing offers airlines unprecedented capabilities that support and simplify complex business processes, provide superior, holistic visibility and actionable insights, and massively automate execution so teams can focus on strategy design. https://www.airnguru.com

Sergio Mendoza, Ph.D., Co-founder & CEO Airnguru;

Javier Jiménez, CCO & Product Owner Airnguru;

Mauricio Acuña, Sr Research Executive Airnguru

An unprecedented context for the airline industry

During the COVID-19 pandemic, the airline industry has suffered from a dramatically steep fall in passenger demand, but, worst of all, from enormous short and mid-term uncertainties which have crippled its commercial capabilities.

Forecasting, the backbone of key commercial decisions

Arguably one of the most data-driven industries, over the last few decades, airlines have relied on forecasting science, technology, and processes as the backbone of many commercial decisions. From network planning to Yield Management, forecasting has been a critical ingredient in airline decision-making.

In the long and mid-term time window of airline business decisions, fleet allocation decisions and budgeting rely, among other things, on long and mid-term industry demand forecasts.

On the other extreme, that is, the short-term time window, Revenue Management decisions heavily rely on granular, unconstrained airline demand forecasts to determine the optimum number of seats to allocate (inventory) to each origin-destination-fare product in each future flight.

In between these two extremes, itinerary adjustment decisions rely on constrained demand forecasts, that is, the airline demand resulting from inventory optimization under the limited capacity of the itinerary for sale.

All this worked reasonably smoothly and well for decades until the pandemic's onset, with one extraordinary exception: September 11 of 2001. In terms of demand destruction, the COVID-19 pandemic has been the worst nightmare that has hit the commercial aviation industry in its whole history.

Uncertainty

However, a few months after the onset of the pandemic, we had learned that the main problem was not the demand destruction itself, but the enormous structural uncertainty introduced to the business: uncertainty of not knowing how the COVID cases would evolve over the next few months, how long would it take for a territory to reach the herd immunity, when would people regain the confidence of traveling again, when and under what conditions would authorities in different countries reopen the borders to international visitors, how will customer preferences and purchase behaviors (basically, what defines the demand segments) change during and after the pandemic.

These and many other unknowns are causal for the travel demand. They define the underlying context of the airline business and the conditions for future air travel demand. And we don’t know how to forecast them because they are highly volatile. Some of them depend on politics, and others depend on demographic, epidemiological, and economic factors, and, above all, this is a first-time-ever event. This highly volatile context produces a highly uncertain demand for future air travel.

The collapse of the airlines' commercial machinery

The most perturbing effect of high contextual volatility is that we have no clue what will happen with the demand for air travel, not even in the short term. Even if we had faith that travel demand would recover (which is a reasonable assumption), we don't know when this may happen and how that demand will behave in terms of anticipation, length of stay, and other relevant customer preferences.

Current airline demand forecasting science, technology, and processes are mainly based on the observed behavior of the demand for past flights and the incoming demand for future flights under stable context conditions. A stable, pre-pandemic context allowed airlines to bet on a single future scenario and made forecasting a valuable tool. The current volatile contextual conditions left demand forecasting models useless, leading to a collapse of the airlines' Revenue Management, fleet allocation, itinerary optimization, and budgeting processes, basically crippling the airlines' commercial planning and decision-making machinery.

We have to be bluntly honest here: given that we have no clue how the context is going to evolve, we have no clue how to forecast demand for air travel. Thus, a new approach to airlines' commercial decisions is needed, and new machinery is required to support such decisions. After all, worse than making bad decisions is not making any decisions at all!

Simu-casting

Though we have no clue how the context will evolve, we may have some hints on possible directions such evolution may take. We could identify some key drivers that define possible future scenarios, for example, the date in which the US will reach herd immunity, the pace at which leisure demand will recover in a given OD market, etc. Second, using reasonable ranges for each of these key drivers, we could lay out a comprehensive series of possible future scenarios representing the level of uncertainty we currently have. Third, we may simulate a battery of alternative commercial strategies. Each commercial strategy could include one or more key decision areas like fleet allocation, itinerary, pricing, yield management, frequent flyer program. We would use the simulations to forecast each strategy's impacts in each scenario on expected net revenue and other financial, commercial, and strategic KPIs, and perform analysis of sensitivity to the various parameters of the corresponding strategies. Fourth, we could rank the strategies based on how winners or how resilient they are across the scenarios, or based on their upside versus risk ratios, and, accordingly, decide which strategy to execute. And finally, we could measure the real results of the executed strategy, recalibrate our simulation parameters and get ready to start a new "simu-casting" cycle.

As time evolves and the pandemic approaches an end, we expect contextual volatility to diminish gradually, so airlines will have a better idea of which future scenarios to discard and which ones to ponder with a higher probability. So, at the end, when the markets reach stability and airlines can bet on a single forecasted scenario again, using our proposed approach to select the right strategy would converge to a problem of strategy optimization for the future scenario. If we could simu-cast at the right speed and cost, we could even use this method to optimize tactical decisions. Moreover, a simulator built and calibrated with the right level of granularity could help airlines understand how the underlying demand is evolving in terms of preferences and behaviors, something quite valuable for the purposes of product and price optimization.

All this may have sounded like science fiction a few years ago. With the help of massively parallel computing and Machine Learning on the Cloud, this may not be science fiction anymore.

How to continue

If you are interested in a deeper discussion of these concepts, want to see Airnguru's developments in this front, or have some interesting ideas that you'd like to share, please do not hesitate to contact us at:

contact@airnguru.com

Follow us on Linkedin: https://www.linkedin.com/company/airnguru

https:\\www.airnguru.com

Cloud-based applications are quickly spreading across many areas.

The Cloud combines networks, servers and applications in a shared pool, generating huge efficiencies of scale. Companies and people can rent services hosted on the Cloud, that are customized to their particular needs. Software as a Service (SaaS) is a term specifically used for business solutions which are provided on a subscription-based model, accessed through a web browser and maintained and stored at the service provider data center or on the Cloud.

A couple of years ago, I was asked by a senior executive why his company couldn’t develop the same system that I was offering, and host it on their premises, instead of paying me forever a monthly fee for my SaaS solution. I told him that I had no doubt he could develop the software with his IT teams and host it on-premises, but there were some quite important issues he needed to take into account first…

Many businesses greatly underestimate the effort it takes to host software on premises, let alone develop and maintain a whole solution by themselves. This effort is especially big in the commercial areas (for example, in pricing, revenue management and network functions) and operational areas of the airline industry, where on-time demands can collapse an IT department’s capability to respond and to innovate.

The SITA IT Trends Survey 2015 states that “airlines are beefing up data collection and processing to provide frontline staff with the right information at their fingertips”:

75% of airlines will run programs in airline business intelligence in the next three years.

68% of airlines will invest in data centers for security and robustness of information.

57% of airlines use SaaS today.

88% of airlines are to use SaaS by 2018.

Source: SITA IT Trends Survey 2015

These figures call for questioning. The same survey shows that 68.2% of airlines’ expenses in IT are focused on service continuity, while only 31.8% is given to innovation and enriching assets such as software development and new deployments. It seems that airlines’ IT budgets are getting sucked by the need to maintain costly legacy technologies.

Source: THE AIRLINE IT TRENDS SURVEY 2015 | © SITA 2015

To reach 88% of SaaS use by 2018, one may wonder whether those investments are sufficient, or if executives are taking the leap forward on time. Timing is essential: the new market scenario that airlines are facing since a few years ago, is generating huge pressure from consumers and corporate customers, increasingly empowered by on-line travel agencies, social networks and internet technologies. The airlines, stuck in legacy technologies, are suffering of an increasing disadvantage against the consumers and the market forces.

The additional budget needed for innovation in this new scenario should come from dramatically reducing the cost of legacy technologies. This could be achieved by replacing on-premise infrastructure and software for SaaS solutions, replacing data centers for Cloud, and replacing in-house software development for specialized supplier software. Regarding the IT talent necessary to sustain an in-house, on-premises approach, it is no secret anymore that corporations around the world are having huge difficulties finding and hiring good IT talent: talented IT professionals just want to work for innovative and dynamic tech companies, where technology and software development are the core business.

Some important advantages of SaaS on the Cloud over legacy approaches

1. Economies of scale of the Cloud translate into much lower TCO (Total Cost of Ownership)

SaaS companies have mastered the use of the Cloud to make the most cost-efficient possible use of the huge amount of hardware available, transfering the “pay per use” scheme of the Cloud directly into cost savings for their customers. One of the biggest impacts of this is that with SaaS, no hardware investments are required.

2. SaaS delivers fast and lean innovation

A second benefit associated with SaaS is that innovation can be done at a much lower cost, faster pace and with much less risk: hardware improvements on the Cloud can be immediately tested and taken advantage of by SaaS companies to improve their service. On the other hand, software upgrades may be performed in an incremental, low cost, not invasive, high frequency fashion. These are huge advantages and, at the same time, they may explain why many corporate IT departments still look at SaaS with suspicion: almost no involvement of local corporate IT resources is required to implement and maintain a SaaS platform.

3. Experience curve for specialized SaaS companies raises much faster than for in-house, on-premise platforms

Given the pace and nature of the innovation enabled by the SaaS paradigm, after developing and maintaining their platform for a couple of years, a SaaS company typically has been able to incorporate massive improvements to their solution and has gained a huge accumulated experience. This position is practically impossible to match by a corporation using local, legacy IT paradigms.

4. SaaS providers offer accountability and low exit barriers

If a corporation fails in its attempt to locally develop an IT solution, or if an on-premise platform managed by a local IT team doesn’t meet the expected levels of service, there is not much the corporation can do about it, except for trying to do better next time and promptly recognizing a loss of financial and human resources invested. However, the most important loss associated to a failed innovation initiative, is the invaluable time to market lost against competitors. In opposition to this, usually a SaaS solution gets implemented much quicker than an on-premise solution, you can very soon make sure that it reallly works and delivers the right service levels and, in case it doesn’t deliver what was expected, usually you can stop the contract with low exit costs; basically, somebody gets punished!

On-premise vs. SaaS expenses

Source: Softwareadvice.com

5. SaaS helps corporations free resources to focus on their core business

If you have your teams and talents dedicated to the generation of profits from your core assets and identifying and selecting the right innovation opportunities for their core processes, instead of having them leading local software developments and managing on-premise platforms, you are probably going to have a more focused, more innovative, more profitable and happier team.

These are only some of the benefits that SaaS offers to an airline. Nonetheless, this is the tip of the iceberg for an ever-growing range of business solutions that helps you focus in your core business, providing you with the right insights and a better time to market.

What concerns would you have before choosing a Cloud based SaaS platform as a core commercial system for your airline? What about a pricing intelligence system? Your opinions are crucial so we can offer you the best service adapted to your needs. I appreciate your comments below.

Unexpected time zone changes are common around the world.

Authorities, when deciding on changing a time zone, don’t seem to understand the holistic and negative impacts they cause. They disrupt our agendas at work, generating confusion and lost productivity for weeks and sometimes for months. Computer operating systems, smartphones, productivity software, etc, loose synchronization. Time zone changes also represent a challenge in the management of risk. In the airline indusrty, time zone changes have logistical, financial and commercial consequences, affecting airport operations, flight itineraries, distribution and, of course, passenger service and airlines’ costs.

In March 2016, the Chilean government announced that they would reinstate daylight savings time (from UTC -3 to UTC -4) between May 14 and August 13, 2016. The winter savings time had been eliminated in Chile in 2015, with the corresponding disruptions at the time, but a year later everybody seemed to have adjusted already… According to Chilean airlines, this will cause important problems.

After a long period of deliberation, LATAM Airlines released a statement claiming that the change would affect over 550,000 people and 5,000 international flights. Its sales director affirmed that the company “wasn’t previously notified, and this should be done with a year notice to prevent problems with passengers”. In summary,  their flights will have to depart an hour earlier from Chilean airports.

At the same time, Sky Airline called its passengers to check their times and dates. Domestic flights would have no further changes, but international routes will have a series of changes. As soon as they heard the announcement the company began rescheduling flights to avoid inconveniences from passengers, such as connection disruptions, and began calling all of them to report the new departure times.

General Consequences for air travel 

In 2005, the United States Congress planned to extend the daylight-saving time for four weeks to save energy and prompted an outcry from the airline industry.  At the time, the Air Transport Association argued that it would throw U.S. international schedules further out of sync with Europe. It said a two-month extension, the initial proposal, would cost the U.S. airline industry U$147 million and disrupt overseas travel.

Let’s imagine a nonstop flight New York (JFK)- London (Heathrow) at the time when DST was extended.  Normally, transatlantic flights from Eastern United States  to Europe tend to depart from 17.00 onwards, as passengers want to arrive no sooner than 06.00. The airline faced two choices:

1. Re-schedule the flight to an hour earlier to arrive on time in London, avoiding inconveniences at Heahtrow airport -after all, all flights from New York are having the same problem. This choice would require contacting all affected passengers in the US to inform them about the new schedule time. This has some big inconveniences, like low contactability rate of foreign passengers returning to their origin, lack of necessary direct contact information of passengers sold through travel agencies, passengers that do not agree with the schedule change and request a different flight and a compensation, etc. Passengers that could not be contacted by the airline arrive at the airport too late and miss the flight; again, the airline would have to compensate and reschedule them

2. Depart on the scheduled UTC time. This would mean that the flight would now arrive an hour earlier in London, causing a series of issues with connecting gates, docks, maintenance units and curfew times.

In March 2016, Azerbaijan canceled daylight savings times. This prompted local airline AZAL’s  international flight schedule to depart and arrive an hour before the time specified in their purchased airline tickets.  Furthermore, they appealed to “passengers who have purchased tickets for dates from March 26th, with a request to arrive for check-in at the airport 3 hours before departure time specified on the ticket.”

Regulation calls for airlines to respect scheduled departure time and keep their commitments to customers, even though arrival times can change. If the airlines are forced to reschedule, they need to notify passengers and provide compensation for eventual delays or lost of connecting flights.

A time zone change is a grey area in airline regulation

Depending on the case,  airlines would have to compensate the passenger, book new flights and provide accommodations for the night, should they be needed. Then, the operator would have to find last minute seats at the earliest flight available, and compensate for fare changes. In the best cases, they can schedule a new flight at the last minute, incorporating all fare costs, airport fees, penalties and taxes for a last minute input into the system, for the passenger to keep the rate of an economy class ticket booked with months in advance.

Multiply this by the number of passengers affected and the airlines and airports are in a predicament. In summary, consequences are multifold and cumulative:

1. Financial: passenger compensations; displacement costs of late passenger rebookings; payment of overtimes and penalties to airport maintenance; etc

2. Logistical: rebooking the right gates; advising passengers on time; recalculating time windows; etc

3. Commercial: negative customer perception (don’t expect them to blame the government!); passengers’ choices depend pretty much on the airline’s capacity to react and promptly address their delay, large airlines having more options than smaller ones; instability of well established schedules damages service to business segments; etc

Stephen Holloway, author of Straight and Level: Practical Airline Economics, states that time zones constrain the deployment of capacity, and their impact on the commercial viability of arrival and departure times, curfews and noise quotas and the availability of take-off and landing slots, gate space and counters at congested airports, etc. Holloway also says that “seasonal time changes to and from daylight saving can also pose a challenge whenever they require a choice between maintaining year-round consistency of timings either at the point of departure or, alternatively, at the destination. The challenge is exacerbated where convenience relative to connecting series at one or both ends of the route is important to the maintenance of flow traffic”.

Conclusions

Time zone changes, especially when they are unexpected, are a big and costly headache for airline customers, for the airline business and for society in general. Authorities should take into account the holistic impacts they produce. The analysis, adjustments and actions required by airlines to deal with time zone contingencies are diverse, highly complex and costly. The help of powerful business intelligence tools, real time visibility and connectivity are critical in dealing with these kinds of contingencies.

Have you faced any concerning issues or contingencies with time zone changes? I’d appreciate your comments.

A Threatening Glitch

In August, Delta suffered failures that threatened its operation for several days, due to a system-wide computer outage, and was forced to cancel more than 2,100 flights and delay much more. According to the airline, its backup system failed to take over its IT system.

In July, Southwest had a router failure slowing operations for nearly a week and United Airlines flights were grounded because of another glitch. What is going on?

Are Airlines’ IT Systems Up To Date?

Although experts say that computer systems in the aviation industry are not more complicated than the ones used in other areas, such as banking or commerce, the chain of events it causes is more widespread.

Apart from paying grievances, airlines have to rebook flights, work rerouting options and find the best fares and combinations to their angry passengers at the lowest possible cost.

Despite the market dynamics behind the Ticketing and Distribution systems, there are some decisions that in the long run can be costly for the airline industry.

1. High Load Factors

Mark Gerchick, author and former Chief Counsel at the Federal Aviation Administration, told the LA Times that “load factors are high and there is much less flexibility in the system. You now have much more of a waterfall effect with each glitch”.

2. Multitasking Computer Systems

Gerchick also pointed out that an airline’s computer system is no longer just responsible for ticket bookings, but seat assignments, loyalty reward programs, and ancillary sales. “I imagine the amount of information on these systems is greater than 20 years ago. I imagine the demands must be grand”, he said.

According to him, airlines are reluctant to spend on technology. “People can tell if a fleet is old but they have no idea what’s going on in the back room. That is very different. They just assume the computer systems work. But you need to look at it through the prism of revenue. You are going to lose money if it screws up.”

3. No Space for Updates, Maintenance, and Testing

Sam Kidd, an Account Manager at Zerto, a data disaster recovery software company, also told the LA Times that any business handling great deals of data must regularly invest in software and hardware and they must test it on a regular basis. However, “it’s more difficult and costly for a 24-hour operation like an airline to upgrade or test its computer system without interrupting regular operations,” he said.

Bill Curtis, Senior Vice President and Chief Scientist at Cast, a software analysis and measurement company in New York, said that, as airline computer systems become larger and more interconnected, airline executives need to understand how important it is that the systems be well maintained and staffed.

4. Outdated Legacy Technologies

Airlines have avoided the steep cost of rebuilding their reservations systems from the ground up; former airline executives told Reuters. According to experts approached by the Associated Press, airlines depend on “huge, overlapping and complex IT systems to do just about everything”. As a result, after years of rapid consolidation in the aviation business, these computer systems may be a” hodgepodge of parts of varying ages and from different merger partners.”

Glitches can increase as airlines merge, forcing their IT teams to combine the booking or scheduling systems of two carriers, leading to computer problems to be on the rise. Gary Leff, a specialist on airline loyalty programs, told The Wall Street Journal that these were “legacy systems grafted onto other legacy systems”, and that companies can’t possibly be fully prepared “for every circumstance that could cause a problem.”

In fact, after the Delta incident, two US senators sent a letter to the U.S. airline executives seeking to learn why their airline computer systems fail so often and what the nation’s airlines plan to do about it.

The members of the Commerce, Science and Transportation Committee fear that too many airlines still “rely on 1960s technology to run their systems, making them unusually vulnerable to cyberattacks”, and ask operators how are they checking if IT systems are both reliable and resilient.

How is the Airline Industry Taking Care of IT Glitches?

After the July event, United Airlines said in a press release that its computer network is reliable and includes redundant systems, and continues to “invest and improve on the reliability of those networks” to deliver better service to their customers. On the other hand, in a video statement, Delta Chief Executive Ed Bastian said: “Over the last three years, we have invested hundreds of millions of dollars on technology infrastructure upgrades and systems including backup systems to prevent what happened yesterday from occurring. I’m sorry that it happened.”

Worldwide airline executives are aware that they have to do something to improve responsiveness. On the SITA Airline IT Trends Survey 2016, CIOs claim that maintenance is their top priority.

1. 66% are focused on service continuity IT solutions, such as investments in new data centers.

2. 34% are focusing on innovation and enriching assets, such as software development.

Source: SITA Airline IT Trends Survey 2016

However, despite the figures, Computer Economics told Reuters that American and Canadian airlines were projected to spend an average of 3% of their revenue on information technology, compared to 8% in commercial banks and 4% in healthcare firms.

Given this scenario, the airline faces a dilemma: should airlines continue investing to “patch” the problems that old legacy technologies give them? Or should they make a hard (even painful), but long term decision to change and switch to new technologies?

How is your airline dealing with IT glitches?

It is a fact, and surely you heard it is happening. The time when machines learn has come. In the airline industry, machines can learn about fare gaps from themselves, and airlines are looking beyond historical trends for yield management. They are running predictive analytics and interpretations. But will they replace or empower revenue management and pricing analysts?

Artificial Intelligence (AI) is one of the biggest trends in the airline industry, in several fields. It has been applied to the hotel industry, flight maintenance, and airport management. Singapore Airlines is already using AI for competitive marketing intelligence, to build its brand and drive sales, using an Artificial Intelligence service to target new customers in a digital marketing campaign, based on online behavior.

But passengers are one step above airlines in airfare monitoring: applications such as tripcombi (formerly tripdelta) use AI to find hidden flight routes. It not only provides the results of an original travel search but also creates entirely new ones. The software finds loopholes like using nearby airports in considerations, turning return and single flights into open jaw flights, and breaking up existing airline alliances, saving prices and airfares in up to 90% .

Some airlines are innovating in their airline pricing strategy with big data. We’ve written about how EasyJet began using applied data science to revenue management and is starting to use AI to predict demand and analyze over 1.3bn searches made on its website each year, to optimize destinations and flight times.

There is plenty of examples. After considering those facts, a very relevant question arises:

Will Artificial Intelligence replace humans and our revenue management and pricing teams?

The answer to this question is not a matter of “YES” or “NO”. It is a matter of WHAT will be replaced.

Will Artificial Intelligence rival airline revenue management and pricing analysts? In October 2014, entrepreneur Elon Musk described Artificial Intelligence as “summoning the demon” as it was creating a rival to human intelligence as the biggest threat facing the world, The Economist reports.

But then, the magazine refutes these claims with interesting facts. Why would Google or Facebook go into an AI arms race without “fretting about being surpassed by their creations”?

The article answers with quite an explanation:

According to the World Economic Forum’s The Future of Jobs report, as we are heading to the year 2020, AI and machine learning will be a major driver of change in the mobility industry -where they classify the aviation sector.

In fact, 58% of respondents in the mobility sector claim that the primary barrier to planning the future workforce is “insufficient understanding of disruptive changes” while 83% believe a good strategy to manage change will be to invest in “reskilling current employees.”

Will the airline industry need Artificial Intelligence experts?

It appears so. American Airlines Head of Mobile Apps and Wearables, Phillip Easter, not only calls AI “the next Golden Age”, as it will dramatically improve how businesses interact with their customers. It’s calling their peers to get their workforce educated on what AI is and how it works.

He underlined the importance of getting the entire business behind understanding and implementing AI at the first AI Summit, gathered in London in May 2016. According to estimations collected from the event organizer, the use of AI in the business environment is growing fast and over the next 10 years, spending could increase from US$200m to over US$60billion.

Will it replace jobs?

Of course it will, and it is nothing new at all. AI will replace jobs just like rowers were replaced by engines. Like coachmen were replaced by chaffeurs, then by cab-drivers, then by uber-drivers. Some jobs will disappear just like phone operators disappeared. Some other jobs will be created, like programmers and car-mechanics. Some jobs will be changed forever, like when physicians got access to X-ray images.

It is an exciting time to be alive, and I’m sure in the future people will envy us for having witnessed these changes. In particular, Revenue Management and Pricing jobs will be incredibly transformed by AI and Big Data technologies. Do you remember how was the office without spreadsheets or email? Do you remember how was life without smartphones? Do you remember the world before Internet?. In a not so distant future we’ll be able to add the following question: “Do you remember how was revenue management and pricing before AI?”

There’s a classic movie (Matrix, 1999) where a character says “Never send a human to do a machine’s job”. It is a very interesting statement; for instance: nowadays i’ts hard to think anyone can do simple aritmetic better than a pocket calculator. However, I think the opposite is still true in most cases: “Never send a machine to do the job that a human should do”.

Now be honest to yourself: What percentage of the tasks that you are doing today could be automated? If you are not an AI expert, chances are that a well-experienced AI team could double that percentage. AI combined with Big Data analytics will allow the automation of a lot of tasks, but not all of them. That’s exactly the point where the power of man-machine interaction must be leveraged. Send the machines to do work of a machine, and send the humans to do humans work, leveraging AI as a tool.

Revenue management analysts and pricing analysts being replaced by computers in repetitive tasks is an inevitable result of the explosive increase in available data that we are experiencing. Years ago analysts would only have access to a few megabytes of data, that being enough to make decisions. A couple of hours a week performing repetitive tasks would not harm anyone’s schedule. Nowadays, you or your competitors are having access to terabytes of data, and the couple of weekly hours of yesterday might have turned into days or full weeks. It is certainly necessary to surrender some control of the repetitive tasks to the machines, trusting AI to do the work for you.

Concurrently, more data is an enabler to better and more detailed decisions. Those better and more detailed decisions can be made only if the methods for data analysis are different. There is more data, there are more opportunities, but your team’s size stays the same (at best!). Therefore, it is inevitable that you leverage the power of AI and Big Data analytics to make better decisions. Of course you can use the same old methods with more data, but would you let your competitors take the opportunities of AI-empowered methods for data analysis?

The amount of available data and the ability to process it with AI is growing exponentially. On the other hand, our human brain-power is not growing that fast, neither are your revenue management and pricing teams’ sizes. Again, it is inevitable that the nature of your work will change. Regarding our initial question “Will they replace or empower revenue management and pricing analysts?”, I can conclude that the definitive answer to this question solely depends on our creativity.

Some aspects of current Revenue Management and Pricing will indeed be automated soon, but some others will take a very long time to be automated, making those aspects remain more efficient if handled by humans. When we leverage the power of AI, new opportunities to better Revenue Management and pricing are limited only by human creativity, experience and wisdom, where AI alone is not guaranteed to win. That’s precisely where we must put our stakes. Let’s work as a team! What do you think about integrating AI to your airline pricing and revenue management processes? Where do you see the “low hanging fruits”?

Earlier, we looked at some airline industry trends, wondering whether airline pricing optimization would evolve by 2020, as digital developments in areas such as Big Data, the Internet of Things (IoT) and Artificial Intelligence are reshaping the way airline pricing analytics works.

A couple of weeks ago, Richard Branson, the founder of Virgin Airlines, called for an exciting challenge on LinkedIn. He asked people how they think air travel will have changed in 10 years’ time.

We don’t know who Richard awarded for the best idea, but despite the prize wasn’t enough to become a millionaire (a $500 Virgin Australia voucher; well, I wouldn’t mind…), we see that he got over 5.000 thousand public answers (you can still check on his “activity” timeline of about two weeks ago on Linkedin). As an act of curiosity, we gathered some of the most common answers to Branson’s challenge participants. Here a summary for you, and, sure enough, you’ll also find our own ideas below. Enjoy!

1.  Personalization and flight experience

Many people believe air travel “will be enjoyable and relaxing for more people,” providing a more personalized and comfortable experience with the use of technology to customize their journey, get detailed flight information, or predicting their travel habits. With personalization, people believe that their flight experience will be better and, with the use of Information Technology, airlines could cater to the specific factors most important to individual customers- as a boutique-like experience -at a lower cost.

1. “It will provide personalized first class service and the autopilot will engage with passengers through their integrated wearables.”

“Passengers will choose their level of comfort to fit certain budgets…. for the traveling family to the jet-set executive.”

“The experience will simply be like a tap and go – similar to the London Underground.”

2. Intelligent pre-flight security

This is a common suggestion from many people. Facial and biometric recognition is a trending comment: optical scanning or fingerprint readers, against a “globally shared database” can be used for “immediate security screening right at the gates”, as it is noninvasive and it would eliminate the need of physical check-ins. This would make pretravel processes much shorter.

“Recognition using Science and Technology – Eyes, fingerprints, even DNA used to augment security.

“Passport and security checks will be done in advance at home to avoid delays at the airport.”

3. Energy efficiency

This topic has a significant number of fascinating suggestions. The use of fuel is a significant concern, to reduce costs, carbon emissions and the environmental footprint. Making air travel, greener, and energy efficient, though a wide range of new technologies, such as engine design, lighter composites, hybrid and clean energy sources. Not only fuel but automatic infrastructure. Airlines will use new technologies to make planes quicker and cleaner.

• “There a way to capture energy in flight that can be transferred to the electrical grid while sitting at the gate.”

• “Solar and wind assisted renewable energy sources:  fuel reduction by 75%.”

•  “Electromagnetic energy will offer both electricity as well as magnetic antigravity energy.”

• “Greener plasma propulsion technology, replacing the current hydrocarbon fuel based propulsion.”

•  “Hybrid electric fleets; Greater efficiency, cheaper flight fare. Smaller capacity, quicker boarding.”

4. New uses of Artificial Intelligence

People predict that the use of Artificial Intelligence (AI) could be widespread in new ways: from drone inputs, automated planes, to organic management responses to flight conditions, such as air quality.

• “Air Travel will dramatically change by using drone technology and go unmanned thus allowing operators to control multiple planes.”

• “Dronic input and robotic advancement will revolutionize transition whilst material and engine technology will diminish travel time and increase.”

• “Vertical landing and launching, a hybrid system mixing jets and choppers technology, will have been incorporated into commercial flights.”

5. New pricing optimization techniques

Regarding airline prices, the sky is no longer the limit. For some, pricing could embrace one charge covers. For others, there should be tiered pricing for express vs. slow planes. Many other people want to integrate subscription-based pricing models and create Uber-like companies for regional travel.

Others predict that airline ticket prices could go down, either with the use of hybrid fuels and the use of electric sources, the merger of airlines or the use of bigger aircrafts.

•  “Looking back at the past 10 years what has changed? More players meaning lower prices and better on board experience.”

• “Due to heavy traffic congestion on ground, Intercity Taxing will be available, for a reasonable Price.

• “Comfort, speed and price will be the focus of competition.”

Personal suggestions

I also stepped to the plate with some ideas:

1. From mega-airports to small “landing stations”

I think airports, as we know them today, will become obsolete, given the huge inconveniences and costs they produce, such as security, infrastructure, transporation, pollution, land displacement, etc.

They will be replaced by much smaller, distributed landing stations in much more convenient locations within urban or suburban radius fully connected to convenient public transportation. There will be many of them within the city radius, wich will lead to more competition, lower landing and service costs and more convenient choices for consumers and travel suppliers.

2. Mega zeppelins for leisure travel and air cruise

They will be slower (around 60-70% slower) than current airplanes, but they will have big advantages. They will offer much more fun on board (casino, shopping, and other “ancillary” activities that will allow the travel suppliers substancially reduce the “base” ticket prices) and beautiful sightseeing.

On the other hand, as zeppelins won’t need long landing tracks, they will land in the cities, on skyscraper rooftops or other kinds of urban landing stations conveniently located. So, part of the loss in speed against current airplanes will be recovered by having smaller distances to landing stations.

Finally, through the use of solar and other clean energies to power propellers or other propulsion methods, zeppelins will cause near zero air pollution compared to current airplanes.

3. Full business airplanes

Business passengers will travel mainly on business airplanes. These will offer full Wi-Fi access (or whatever the real time, large bandwidth, global connectivity access that may have succeeded WiFi at the time will be named), video conference screens, meeting rooms onboard, so business travellers can work and do business during a day travel without disrupting their workday, and then sleep in a real bed at night after landing.

4. Business airplanes with vertical landing

Vertical landing will structurally change business travel -as zeppelins will do with leisure travel-. Business airplanes will be able to land in the city or within the suburban radius, in small landing stations, conveniently located, directly connected to public transportation or parking lots, without the need for big and far away airports required for landing. As we explained in Nr 1, there will be several of these landing stations within the urban radius where the traveller may choose from.

5. Artificial Intelligence-empowered security

High precision individual bio and image recognition, pre-profiling and artificial intelligence to expedite all security processes at boarding. The passenger that doesn’t want to be automatically recognized -should the law allow him to choose- will have to go through the old hassle.

6. Artificial Intelligence-empowered business management

Artificial intelligence will empower most -or even take over some- of the complex airline decision processes, substantially increasing productivity, revenues and customer service.

How do you dream commercial aviation will be by 2030? Send us your proposals!

Market dynamics around large sport events like the Olympics test yield management and advanced predictive analytics of the airline industry.

In an ordinary day, airline pricing and yield management are a dynamic, competitive chess game for airline revenue managers. Now, imagine a major event that gathers people from around the world, which completely changes the dynamics of the market and flight demand patterns.

One is about to begin: the 2016 Olympics in Rio de Janeiro, putting to the test the entire airline industry for several reasons.

1. Flights to Rio could almost triple

According to statistics from the Rio Times, the number of international flights to Rio de Janeiro between July 25th and August 21, 2016, has increased 289 percent compared to the same period in the previous year.

In numbers:

1. 500,000 foreign tourists are expected just for the event.

2. There are 45,400 trips scheduled.

3. There is a 13% growth in online travel sales.

4. The total scheduled international seats to Rio de Janeiro is up by 19%.

5. Total flight bookings to Rio are ahead by 148% due to the Olympics.

6. Total flight bookings to Rio are ahead by 23% due to the Paralympics.

Source: Statistics gathered by eRevMax, Frontier Magazine, Reuters

Source: Forward Data SL

2.  South American travelers will rise to the top

Short and mid haul flights from South America – especially Chile and Argentina- will increase online travel revenue by 45%, and scheduled seats by 31%.

3. Predictive analytics will be put to the test

The Olympic Games or the World Cup trigger an entire machinery to secure a streamlined, and optimal flight system, including bookings, fares, and yields.

According to Trudie Ann Atherton and Trevor Atherton from the University of New South Wales – who took lessons from the Sydney 2000 Olympics- there are several problems tourists face in these scenarios, such as overbooking in transport or accommodation, and overcrowding. The combination of these two, in the end, can turn into delays.

4. Game theory and market dynamics at its best

All in all, yield management in these cases are an entire game of probabilities. Why? Because there are hardly any benchmarks to run advanced predictive analytics. Every 4 years, the venues are different, the teams and participants who qualify change at all times. Most importantly, winners who stay and losers who go home change by the minute and even the millisecond.

Brazil is no stranger to this predicament. They hosted the 2014 World Cup, where the dynamics of air travel were very unpredictable.

There were record short-haul bookings for domestic flights around Brazil to watch the final game in Rio’s Maracanã Stadium. The big surprise was that Brazil didn’t qualify for the final after all, but Germany. Long-haul supporters replaced Short-haul fans.

And it’s not just about bookings and seats. Fare rules can turn ghastly when, at the last minute, passengers need to extend or reduce the number of days at a venue, depending on their team’s performance. Hence, the pricing goes up, and customer satisfaction goes down.

5. Don’t forget your frequent passenger

With this level of demand segmentation, prices go up to the roof and, while serving a particular type of customer (the Olympics traveler) with tight fare rules and regulations, airlines can end up overlooking some of their frequent passengers.

When the Olympics end, what’s next?

According to ForwardKeys,  “Rio will be facing a weak performance after the Olympics and Paralympics from the long-haul markets: forward bookings for total international arrivals between 29 September and end of the year are down 13% but bookings from Latin American markets are still up 24% thanks to the supporting Argentina and Chile.”

So don’t take your customers for granted. Sheryl E. Kimes, professor of operations management at the School of Hotel Administration (SHA) calls this Perceived Fairness. That is, “when customers believe that a company is behaving in an unfair fashion that they are unlikely to patronize that firm in the future”, demonstrated in customer reaction to high prices after a disaster or large sporting events.

6. Slim profits?

Despite the number of flights and heavy logistical machinery, when cutting corners, servicing the Olympics could not be a great business. According to IATA, Brazil is one of the most expensive places in the world for fuel, as it accounts for 40% if costs, versus the 30% global average. Taxes, on the other hand, are on the roof: Sao Paulo, for instance, taxes fuel for domestic flights at 25%. To add up to this predicament, the small profit is greatly influenced by:

1. Unbalanced routes

When the games start, all flights with inbound direction to the event get filled very quickly, and the airlines can increase their fares in such flights. However, flights in the opposite, outbound direction are quite empty. The depressed load factors of outbound flights usually hurt airline profits more than what the better fares of inbound flights can compensate. The same scenarios occur on inbound flights when the games end and extend to sub-events during the games such as an important game or the finals.

2. Agencies buying in advance

Usually, for these types of events, travel agencies try to book flights with more than eight months in advance to prepare the all-inclusive packages (flight + accommodation + tickets)  and access to better prices. If the airline doesn’t have a clear pricing strategy for agencies, it might lose a significant part of the potential revenues to other airlinesthat do have a clear proposal for the agencies.

7. Worldwide flight hubs will come to the rescue

Over 20% of athletes originate from the Asia Pacific region. However, there is no direct flight capacity to Rio. The top five transit hubs for travelers will be Dubai, Santiago, New York, Sao Paulo and Frankfurt.

It is one of the reasons why LATAM, Latin America’s largest carrier, plans to add up to 300 additional flights just to service these games, investing over $5.6 million dollars in the operation, as it projects to transport approximately 25 percent of those traveling by plane to Rio de Janeiro for the games. What is your experience with yield management in large sporting events?