Revenue management is a discipline rooted in decades of rigorous analysis, where the stakes are high, and getting it *right* or *wrong* directly impacts an airline’s bottom line. So questions like, “What was the revenue uplift of last week’s pricing intervention?” are critical to revenue performance.
Pricing and Revenue Management (PRM) teams strive to respond with precision – but achieving it is no small feat. Let’s face it, as retailing strategies, technology, and data are transforming the industry, established methods of value measurement have struggled to keep pace.
Key Challenges for Airline Pricing and Revenue Management Teams
PRM teams face a host of challenges as they measure the impact of retailing initiatives:
- Confounding Factors: The airline environment is dynamic and interconnected. Competitor actions, customer behaviors, and external events create layers of complexity, making it difficult to isolate the effects of any one intervention.
- Simultaneity Bias: Pricing decisions often anticipate future demand, but this creates a feedback loop that blurs the lines between cause and effect, making accurate measurement elusive.
- Measurement Sensitivity: Detecting and validating small revenue changes against the backdrop of natural variability in demand is tough. Difficulty intensifies when experiments are limited to a handful of routes, where small sample sizes amplify the challenge of finding meaningful results.
- Cost and Time of Experiments: Designing, running, and analyzing experiments can be resource-intensive. Many airlines face long timelines. It can take months to get a result – or worse – get an inconclusive result.
Airline PRM frontrunners are now using new-generation value measurement and advanced experimentation platforms to overcome measurement challenges. Inspired by digital-first giants like Booking, Uber, and Expedia, and grounded in data science academia, they are embracing new practices. So, when their teams are asked “What was the revenue uplift of a pricing intervention?,” they can conclude, “It was 1.5%” – with statistical significance. They can also accurately respond to other questions such as, “What was the revenue uplift of last week’s pricing intervention?” or “What is the actual impact of this new dynamic pricing engine?” with precision.
Curious to learn more about advanced experimentation and strategies to de-risk retailing innovation with insights from the digital-first world of retailing and academia? Read more or connect with a member of our team today.
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Why acmetric
- Proven Track Record: Successfully implemented measurement frameworks for industry leaders like LATAM Airlines, a Tier 1 European airline group and tech-giant, Uber.
- Exceptional Academic and Scientific Credentials: At the epicenter of the “Experimentation Revolution” defined by Harvard Business School, our team combines world-class expertise with rigorous training from institutions like the National Defense University, Harvard, VU Amsterdam, and Cambridge. Strong ties to elite research bodies keep us at the forefront of innovation.
- Deep Airline Domain Expertise: Profound understanding of both theoretical and operational aspects of building large-scale experimentation capabilities tailored to the unique needs of airlines.
