Driving Airline Profitability Better with Dynamic Pricing

Several management consulting firms have noted, for years, that a mere 1% improvement in the realized price typically translates into a profit margin of up to 10%-12%. This impact measures significantly greater than any other profit lever such as variable costs, fixed costs, or sales volumes. Pricing is the single most important lever available to improve profit margins in general, and the airline cargo business is no exception to this.

The Airline Industry is currently abuzz with the term Dynamic Pricing. The simplest definition of dynamic pricing is the “change in prices over time.” This phenomenon draws a lot of attention because it brings leverage to the industry for driving profitability. However, effective implementation of the dynamic pricing models remains a top challenge before the industry.

Under the traditional pricing model, the industry saw incremental increase in the prices at certain discrete points in time, such as before departure or when a certain amount of capacity was sold. The other popular methodology was bid pricing, which was based on the type and amount of remaining demand and remaining capacity.