Airlines turn to personalised offers to combat revenue declines

May 24 2016 – 11:48AM

Jamie Freed

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Falling airfares, which are positive for consumers but negative for airlines and travel agents like Flight Centre Travel Group, are leading carriers to increase their focus on making personalised offers to passengers to combat revenue declines.

“What we are noticing in the airline world right now is flat or slightly declining revenue for airlines even as profits go up due to lower fuel,” said Wunderman-Bienalto global head of travel John McDonald, who has advised Virgin Australia’s Velocity frequent flyer program, United Airlines and Air Canada on marketing strategies. “When the pressure is on the fares they are looking at how they become more effective retailers.”

Airline chief executives say the industry is moving toward individualised pricing.
Airline chief executives say the industry is moving toward individualised pricing. 

Mr McDonald said in this environment, airlines were focused on using their data to provide tailored offers of extra services like better seats, meals, in-flight internet, lounge access, hotel and hire car bookings and flight upgrades that were relevant to individual customers. This can be done through digital promotions via email or social media at a far lower cost than broad-based marketing to help boost airline revenue.

“The heart of this is providing products and services that consumers want,” Mr McDonald said. “That is what de-bundling [services from the fare] is heading toward.”

Airlines hope to increase passenger revenue through targeted offers.
Airlines hope to increase passenger revenue through targeted offers. Photo: Brendon Thorne

Preliminary financial performance figures released by the Association of Asia Pacific Airlines on Monday showed  Asia-Pacific airlines recorded $US6.9 billion ($9.55 billion) in combined net earnings in 2015, an upswing from net losses of $US1.2 billion reported in 2014. But passenger revenue fell by 5.4 per cent to $US128.4 billion, due to a decline in average airfares despite the growth in traffic demand and the financial benefits from lower fuel prices.

Qantas and Virgin have both warned of tough market conditions that have led to declining airfares, while Flight Centre on Monday issued a shock profit warning due in part to lower than expected commissions as a result of airfare declines.

Morgan Stanley on Tuesday cut its profit forecasts for Qantas for the next two financial years as a result of weakness in international airfares.

Within the airline industry, there has also been increased discussion about the prospect of personalised pricing of airfares using data from loyalty programs and other sources.

Big data travel expert Mark Ross-Smith said the airline industry was moving rapidly toward data driven pricing as the engines running revenue management systems became more sophisticated.

“This is way beyond digital marketing or advertising as we know it – but rather operates on a highly intelligent system which crunches numbers 24/7, changing dynamic values of how likely each individual potential customer is to buy or click on a specific product,” he said.

Mr Ross-Smith said Virgin Atlantic had price differentiation in its loyalty program where high-status members received better rates and seat availability than less loyal members.

“Cathay Pacific prices can change depending what time of day and how long before a flight departure you search for a flight, and through what channel,” he said.

Mr McDonald said most airlines were not yet looking to personalise pricing on an individual customer basis, which was illegal in some markets like the United States.

“I think the more interesting place for personalisation is personalising offers from a service and product basis in what people want,” he said. “I might be really keen to use the lounge but I might not be an elite member. [An offer to pay for access] is good for me and it is good for the airline.”


Source : The Canberra Times

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