Journal of Revenue and Pricing Management

, Volume 15, Issue 5, pp 360–379 | Cite as

Dynamic pricing – The next revolution in RM?

  • Thomas Fiig
  • Oriana Goyons
  • Robin Adelving
  • Barry Smith
Research Article

Abstract

Existing revenue management systems (RMS) base their recommendations on historic observations and do not explicitly consider competition. This means that RMS recommendations often are not appropriate for real-time competitive situations. Dynamic pricing (DP) is an extension of RMS that dynamically calculates the optimal price, taking into account the airline’s strategy, customer-specific information and real-time alternative offerings. By optimizing the contribution within the shopping session, DP has a more current and detailed view of demand and can improve RMS performance. We investigated the performance of DP using two simulators, Altéa Benchmarking Engine and Passenger Origin Destination Simulator and demonstrate that DP can deliver substantial revenue benefits with no modification to existing revenue management (RM) processes. However, the deployment of DP into the airline distribution process will be a challenge, because it affects all shopping and downstream processes, such as ticketing, servicing, revenue accounting, RM and interline settlement, that rely on information from existing fare aggregators. Nevertheless, the potential benefits of DP are so compelling that we believe the effort to bring this technology into practice is warranted.

Keywords

dynamic pricing (DP) distribution revenue management system (RMS) global distribution systems (GDS) Passenger Origin Destination Simulator (PODS) Altéa Benchmarking Engine (ABE) 

Notes

Acknowledgements

The authors would like to thank Valerie Viale, senior manager product marketing at Amadeus and who is responsible for the DP product, for her constructive feedback. In addition the authors are also indebted to our anonymous referees for their time and exceptional valuable comments.

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Copyright information

© Macmillan Publishers Ltd 2016

Authors and Affiliations

  • Thomas Fiig
    • 1
  • Oriana Goyons
    • 2
  • Robin Adelving
    • 2
  • Barry Smith
    • 3
  1. 1.Amadeus Airline ITKastrupDenmark
  2. 2.Amadeus Airline IT, Amadeus S.A.S.Sophia Antipolis CedexFrance
  3. 3.Barry C Smith LLCDallasUSA

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