Dynamic ancillary pricing to increase profitability by up to 30%
While settling in on Sun Express flight XQ170 from Antalya to Hamburg, prior to take-off, I heard an announcement offering upgrades to XL seats. Paid onboard upgrades? On a leisure airline? This was new to me and a great example of good timing.
Ancillary sales are becoming more important because base fares must be minimal to reach top positions in booking search results. Yet, after the passenger has been attracted, the up-sell process is often only beginning. Interestingly, airlines exert significant effort toward booking class price differentiation, but they leave ancillary prices static. Let’s highlight the opportunities that dynamic pricing offers at three levels:
- Route and flight segment
- Timing of purchase
- Day of booking
1 – Route and flight segment
It is well known that there are certain routes on which customers require additional bags. Higher demand allows airlines to charge higher prices, right? While the logic applied by revenue management should also work here, it shouldn’t be based on booking class but rather on baggage demand by route.
Demand for premium seats also has a high variance by route. Business routes might allow for a price premium, but on leisure routes, XL seating can be pushed by promotional discounts to retrieve additional revenue. Sometimes it’s merely the “special offer of the day” that changes the decision to buy.
Ancillary price variation by route requires a solid data model to trigger price adjustments both automatically and on a micro basis. UNEX has developed APO – Ancillary Price Optimizer – , which it applies to customer projects.
2 – Timing of purchase
A prominent example of this method is the pre-booked bag price compared to buying it at the airport counter.
- Wizzair charges more than three times its web price if customers purchase bags only at check-in, and they also ask for a higher baggage price during the high season.
- Spirit not only differentiates between initial booking and check-in purchases but also has additional price points for changing the baggage from an existing booking to the highest price for purchases at the gate.
A gate purchase is an especially interesting case because most airlines load oversized bags and trolleys, which are too heavy to place in the belly of the aircraft, with no surcharge. Therefore, clever passengers are better off taking their oversized and/or overweight bags and trolleys to the gate instead of paying for a checked bag. However, given Spirit’s costly baggage fees at the gate, customers will quickly understand that cheating does not pay off.
Willingness to pay can vary greatly along an individual’s travel journey. When booking far in advance of a trip, passengers might be extremely price sensitive. Yet, as their departure approaches, they might desire additional legroom, a nice meal, or inflight entertainment. It is crucial to understand at which point in time certain products have the highest probability of being sold at a maximum price. A test environment and benchmark studies may grant the required answers. UNEX supports airlines taking the lead on drawing the line of price elasticity for each ancillary product along the customer journey.
3 – Day of booking
Day of booking and even time of day show significant differences in ancillary bookings (e.g., on weekends, some routes nearly always have high baggage and premium seat demands, while on weekdays, those demands are low).
Exploring these price opportunities can be very profitable.
How can you take advantage of dynamic ancillary pricing?
The UNEX Ancillary Price Optimizer (APO) processes your data into meaningful insights based on business analytics software. Once triggers are set and corresponding measures have been identified, our data scientist team builds rules to self-steer pricing along set boundaries.