Traveler centric airline offer design and optimization

Abstract

In the airline industry’s very competitive landscape, being traveler-centric and offering an adapted set of products and services for different customer segments is crucial for airlines to resist and keep growing. By correctly designing and pricing product offers, airlines will reinforce their travelers’ loyalty and open upsell opportunities and strengthen their competitive position and revenue. This paper presents a new approach to design and optimizing airline offers, aiming to better consider travelers’ needs and preferences and improve airline revenue. The proposed method is based on market research and conjoint analysis techniques, combined with a revenue simulation framework. To better understand travelers, airline historical bookings data are used to cluster them in different segments based on their trip characteristics and booking behavior. In addition to the segmentation, a large sample of several thousands of travelers is surveyed using an adapted questionnaire per segment. The survey required participants to select one option among an assortment of a few products with different features. The data collected are used to build a choice model and evaluate the price elasticity. Travelers’ segments, estimated utilities, and choice modeling combined with the price elasticity and product preference shares are used to design the new product offer. A revenue simulation framework is developed to evaluate the revenue impact of introducing these new products in a competitive landscape. It simulates the flight booking life cycle from the flight’s opening for booking until the day of departure. Several scenarios of demand and willingness to pay are evaluated. Our approach is tested on a mid-size, full-service carrier. It allowed a better understanding of the travelers’ segments and behavior and resulted in a revenue improvement ranging from 1.6 to 4%, depending on the cabin and simulation scenario. Following the obtained results, the study recommendations’ are being implemented in production with an airline partner.