Hot Topics

Developing an integrated approach in revenue management leading to real-time dynamic pricing
Lufthansa Systems is currently in the process of implementing a fully integrated approach to revenue management and pricing unique to the industry that serves these requirements, ultimately leading to real time dynamic pricing. The dynamics in the airline market have significantly increased over the last years. In addition the low-fare competition in more and more markets makes it very difficult to maintain the traditional way of passenger segmentation and pricing based on products pre-defined by rules & restrictions.

The low fare airlines apply a pricing model segmenting the market primarily by charging different prices at different times before departure. As a result, network carriers felt a need to adjust their old fare structure, since they face a situation of competitive disadvantage when keeping the rules & restrictions in place. Traditional carriers as well as some low fare airlines are using revenue management systems designed to maximize total revenue in an environment defined by products and passenger segments purchasing just these products. These systems work well as long as the rules & restriction are in place, but result in a spiral-down effect on average yield and total revenue when these restrictions are being removed and the passenger start buying the lowest available fare.

Thus airlines urgently need a fast and very flexible way of calculating the price and the availability of their services, fully considering all the challenges and advantages of these new market conditions. This solution covers the needs of the various business models. This includes low fare airlines, traditional airlines faced by strong low fare competition, as well as network carriers, which need to maintain the traditional pricing structures on parts of their network and also introduce restriction free fare structures on other parts of the network. At the same time, the solution considers the characteristics of the GDS distribution channel, which still plays a strong role for many network carriers, while making full use of the advantages of alternative distribution channels. This solution will be part of Lufthansa Systems' ProfitLine revenue management product line offering comprehensive O&D based solutions.