Dynamic pricing of airline offers

Abstract

Airlines have started to focus on expanding their product offerings beyond flights to include ancillary products (e.g., baggage, advance seat reservations, meals, flexibility options), as well as third-party content (e.g., parking and insurance). Today, however, offer creation is rudimentary, managed in separate processes, organizations, and IT systems. We believe the current approach is inadequate and that the key to profitability is to manage offers consistently in an integrated Offer Management System (OMS). However, realizing this vision, will require significant advancements in the science of pricing and in distribution. The entire scope of an OMS cannot be covered in a single paper. Hence, to provide depth, we will focus on what we believe is one of the most critical components of the OMS—Dynamic Pricing of airline offers. Finally, we discuss various industry initiatives that will enable deployment of Dynamic Pricing of the flight product alone or the broader scope of OMS.