“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 on select markets, and Pieter Bootsma, the group’s chief revenue officer, last month told The Beat that it plans to expand that “progressively through all countries.” The Lufthansa Group last fall also launched a continuous pricing offering on most European continental routes via its New Distribution Capability application program 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 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, said Chris Anthony, cofounder 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 said.
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 currently is in the planning and implementation stages with Kambr to incorporate continuous pricing, said Henning den Ouden, Flyr SVP of revenue management.
Though air traffic volume in Norway remain low at the moment, den Ouden said it likely will 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 said.
“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 said. “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 said—it also could offer advantages on the consumer side, he said. It ultimately could 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 said. “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 said.
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 said. 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 said.
Kambr also is working with Turkish leisure carrier Corendon Airlines on a continuous pricing strategy. It is working 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, but 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 said.