Airline Pricing Strategies: The Best Way to Sell to Corporations in 2022
The airline industry is under constant pressure. The level of competition is at an all-time high. The dependence on costly fossil fuels is forcing some airlines to impose fuel surcharges. Many are working at overcapacity thanks to the steady but strong emergence of low-cost carriers. And many airlines are resorting to steep discounts for corporations in order to retain market share.
And, as if things weren’t bad enough, along came COVID. Industry revenues in 2020 were just 40% of the previous year ($328 billion), taking things back to 2000 in nominal terms. It is not expected that traffic will return to 2019 levels before 2024.
At Pricefx, we’ve spent the past decade helping companies across all industries to become more agile with their pricing. This newfound agility helps them quickly adapt to the twists and turns of today’s highly unpredictable climate, and to optimize their business plans to ensure they’re capturing every dollar, while still delighting customers with engaging offers. Having worked with market leaders in other industries, we want to share some leading practices that will help guide your planning for 2022.
In this article, we’ll explore how every airline should be planning your pricing strategy for selling to corporations and look at ways of increasing your market share without impacting margins. We’ll also dive into why it’s time to prioritize transforming your pricing processes.
After reading this article, you know how to create a pricing strategy that actively supports the execution of smart, data-driven corporate fare prices that create win-win scenarios for you and corporate customers.
Today’s Standard Model for Airlines Selling to Corporations
Most airlines today are relying on discounts to compete for corporation spend.
Let’s say you have a contract with global corporation Pear Technologies who have committed to buying $50 million worth of airline tickets per year (their committed spend) in return for a 15% discount on each flight (your discount limit based on their committed share).
This committed spend may only be 30% of the total flights Pear Technologies books to your origins and destinations. The remaining 70% are committed to other airlines.
In order to increase your market share with Pear to 40% for those flights, you decide to offer the company a new deal. If they agree to commit to an additional 1,000 segments, then you’ll increase their discount per flight to 20%.
So, you’ve sacrificed an additional 20% profit to buy 10% additional market share… not a good financial decision. Every time you issue a discount, you’re giving away a portion of your revenue and it’s impacting your profitability.
Margin erosion through discounts is one of the biggest and most insidious problems for airline pricing specialists today.
And it is exacerbated by the next biggest thing: their tools.
The Definition of a Pricing Nightmare
Every time Pear books a flight, your team is tasked with working out per route and per cabin what the appropriate discount should be based on the corporation’s commitment.
But not only are they working with outdated and siloed data. They’re trying to make sense of it in Excel. Your team is trying to manage spreadsheets for every single corporation, every single destination, and each of the 20+ fare classes you offer.
They have no visibility, no automated processes, and no idea which contracts are profitable and which aren’t. It’s like trying to run a Boeing 777X on hay and water. Processes like these are susceptible to duplicates, overwriting, and good old fashioned human error. RFPs can take anything up to three weeks to turn around and executive approvals take forever! Everyone is so busy populating little cells that no one can see the dark ominous woods of margin erosion and lost opportunity.
A Smarter Airline Pricing Plan for 2022
There is a better way.
Discounts are not the only value lever you have at your disposal. To make your offer more attractive and competitive to corporations, incentivize with ancillaries—those extras that you normally charge for, but whose incremental cost is nominal. Things like:
- Loyalty points
- Carbon offsets
- Priority Boarding
- Lounge access
- Free ticket change/ cancellation
- Extra baggage
These are the things your corporate frequent flyers actually appreciate. After all, their company or clients are paying for the flight and your discount isn’t going to compel them to take your flight versus a competitor when their price is comparable. mean much to them. But what road warriors we all really value when travelling is a more hassle-free comfortable trip with some perks.
You might still want to provide a discount in order to attract the corporation in the first place, but by offering a smaller discount (fleshed out with creative value adds that don’t cost you a penny) could mean you clawing back 5-10% of your precious margin.
You can offer performance incentives to your big corporation, like “any flight over the $50 million commitment comes with additional ancillaries”.
Doing this will not just make you more competitive, but will help you increase your market share, bolster your revenue, and boost profits.
Incentivizing With Ancillaries? Where’s The Catch?
Well, if mere discounting was a nightmare to execute in Excel, how are you going to work out lounge access and loyalty points for every single one of your destinations and for each of your fare classes in order to offer the correct combinations of benefits and ensure you’re still meeting your goals?
It’s actually impossible… without the right technology.
Price optimization and management software is designed to help you reach your profit and revenue goals through actionable insights that help you fully optimize your prices across your offering, grow your profits, and increase your market share.
By investing in the best pricing software, you’ll be supporting your team with competitive RFP response times and the ability to quote with accuracy and confidence, resulting in larger deals that take ancillary benefits into account to create margin-optimized win-win pricing scenarios for you and your client.
You’re probably already leveraging dynamic price lists, but ensure they enable automated price recalculations based on your defined triggers. And make sure your solution allows you to manage your customer-specific agreements and discounts at any level of complexity. You’ll also want to be able to create, calculate, track and execute complicated discounts and rebates with ease.
With the right software, you’ll gain a clear overview of your pricing and can analyze your business data in minutes. Not only will you be able to quickly identify optimal margins and opportunities for profitability, but can determine better or worse performing offerings or client accounts (with granular root cause analysis) and make informed decisions as to your next steps.
Of course, you’ll need one that seamlessly integrates with your existing third-party data tools. And it should allow to organize your price lists into segments, build an unlimited number of price calculations, and perform pricing simulations so you can test your pricing policies and the impact of price changes on client and competitor behavior.
Not only can price optimization software boost productivity, but it can actively support you in negotiations with corporations by linking customer value drivers to pricing based on willingness-to-pay.
If your company goals are to grow market share, revenue and profitability, then price optimization is your next step.
Airline Pricing Strategy Should Be on Protecting Margins
Airlines are in a pinch… the worse time to be thinking about investing in brand new technology. But with the uncertainties of the time, there really isn’t a better one.
If your main lever for the competition is to discount, then you’re sacrificing margin with every flight. And if you’re trying to manage complex corporate committed share agreements in Excel spreadsheets, you’re not going to have a clear overview of your profit drivers or opportunities.
It’s time to change the model.
Get a tighter rein on your margins by offering customer-valued ancillaries instead. Invest in the software that will enable faster and more accurate pricing, deliver the insights to help you uncover opportunities, and the tools to help you negotiate better corporate customer deals for a bigger slice of the market, boosted profitability, and a steadily growing revenue. You’ll also be able to adapt to dynamic market changes quickly and easily—invaluable in the current climate.
If you’re interested in learning more about how pricing software can benefit you and your team, read here. Otherwise, you can peruse other case studies to see how pricing software helped them to save money and eliminate margin leakage.