What are the ongoing and upcoming pricing developments in the travel sector (article written in 2022)
The development of tourism and travel has seen incredible growth in the first two decades of the 21st century.
As we are just emerging from a global pandemic, as a geopolitical crisis in Eastern Europe poses risks to the global economy, and as climate issues become increasingly oppressive, we could be skeptical about the growth potential of the travel industry.
Admittedly, the rapid changes in the economic environment require increased vigilance. However, there is little doubt that the demand for travel will remain strong forever.
In a world where the scarcity of resources impacts costs, and where the mood of society gives way to pessimism, we must be attentive to the evolving will to travel and the solvency of consumers.
Revenue management must be more strategic than ever to maintain the link between supply and demand, maximize revenues, and allow transport and tourism companies to remain profitable.
Let's review the economic and societal challenges of our century and anticipate their repercussions on the pricing of transport and tourism services in order to understand what will be the winning pricing strategies and tactics in the 21st century.
Climate uncertainty and resource scarcity
Regardless of the reality and criticality of climate change, the approach to the subject by leaders of economic zones around the world, as well as the sensitivity of consumers, will impact tourism and transportation consumption. For the moment, we observe a fragmented awareness between States.
What seems certain is the desire of historically developed countries to regulate the most energy-intensive consumption patterns of the middle classes which have, until now, been the locomotive of global mass tourism.
At the same time, globalization is decelerating, and its beneficial economic effects could curb, halting the emergence of middle classes in developing countries, and slowing down global demand for travel.
On the horizon of this century, we should ask ourselves if there will still be enough middle classes on the planet to travel en masse and if they will still have the desire, the means, and even the right, to consume the energy-intensive services of the travel industry.
In a scenario of increased taxation and a gradual ban on carbon energies, combined with a general increase in prices due to tensions in the supply of raw materials, it is likely that the business models of the tourism and transport sectors will be pressured, to the point of profoundly transforming their economic model.
Yield management has greatly contributed to the growth of mass tourism by offering transport companies an economic formula, allowing them to make profitable the gigantic transportation and hospitality capacities implemented.
Faced with the challenges of the 21st century, these same companies will have to aim for more daring optimization models to continue to be profitable, thanks to efficient services accessible to the greatest number.
Along with other disciplines, revenue management will be instrumental in optimizing company revenue by continually seeking the right price.
In a world where resources are becoming expensive, current market inefficiencies, such as low occupancy factors, may no longer be economically viable. Also, society may no longer tolerate such wastage of resources.
Imminent constraints and risks
While some business sectors are counter-cyclical and do relatively well in times of crisis, companies whose business model is based on yield management could be particularly exposed over the next 24 months.
If current economic instability turns into a full-blown recession, capacities just brought back to the market by transport and tourism operators after the health crisis will exceed demand, exacerbating competition.
Opportunistic players, only thinking in the short term, will be tempted to relaunch the race for market share by recalibrating the value of their services at a lower level and/or by setting a reduced call price.
In a context where inflation, interest rates and the cost of energy are on the rise, such actions will prove destructive to value. An exceptional event – just like a period of recession – calls for the tactical decision to hold out until the end of the crisis, not for a change in business model. Anchoring low benchmark pricing points in the minds of consumers will encourage consumption practices that have a diluting effect on revenue.
Like air transport, which has been severely disrupted over the past two decades by low-cost airlines, all tourism and transport services will be challenged in the 21st century by new players who will try new concepts allowing alternative value propositions at an equal or lower price.
Though the modes of commercial and pricing responses to low-cost airlines are subjects well mastered by Airline Tactics consultants, other strategies will have to be invented to support all sectors of activity where yield management is applied.
Will dynamic pricing become the norm?
The current inflationary situation accustoms consumers to the fact that prices can vary greatly and quickly for all categories of goods and services. The commercial requests we receive from companies wishing to study the implementation of dynamic pricing are numerous. There is real enthusiasm from the leaders of companies located outside the traditional field of yield management to set up dynamic pricing models.
The time is definitely right for tourism companies to push their pricing models further and address opportunities they have not yet dared to seize for fear of the reaction of their customers.
While the deployment of 5G mobile networks, promising a latency time reduced by 10 compared to the previous generation, is still in progress, the 6G standard is being defined for commissioning in the 30s. High Internet speed and low latency will become the norm. Whether the pricing offer is dynamic or not, revenue management and distribution systems will have to provide personalized pricing proposals in record time to acquire customers who will no longer tolerate waiting long seconds before seeing the price of a transport offer displayed.
Most likely, revenue management teams will also want zero-latency pricing, i.e., prices published instantly across all distribution channels, and inventory systems that continuously re-optimize price quotas, and not during nocturnal batches, as is still too often the case. Other technical architectures and demand forecasting algorithms will have to be invented, no doubt with the help of artificial neural networks.
Businesses that are unable to provide instant, frictionless pricing and shopping experiences will see their revenues decline.
The value transferred from the data to the artificial neural model
Since the turn of the century, companies have learned to master their reporting data to create business insight solutions to facilitate their decision-making, then they have collected massively – even abusively – very large quantities of personal data to maximize the return on investment in their advertising campaigns.
In 2022, the company OpenAI began marketing breathtaking artificial intelligence models, and we are already sensing the profound transformations that will upset the economy, without yet clearly defining their contours.
What we foresee is that the added value will reside less in the data itself, but much more in artificial intelligence models that will give decisive competitive advantages.
During this century, the algorithms of revenue management systems will be reinvented to predict demand and optimize prices according to logics that are radically different from those that exist today.
Tech giants' pricing models take on transport
Subscription pricing models giving access to an unlimited offer are gaining ground in all economic sectors and have started to penetrate the leisure and mobility industry, such as leisure parks, ski resorts, and Mobility as a Service (MaaS). During this century, this trend will continue to progress, and an increasing number of transport solutions and tourist experiences will become a convenience for the consumer.
The intrinsic characteristics of the sectors of activity where yield management is applied make the generalization of unlimited tariff offers for long-distance transport or the hotel industry unlikely. On the other hand, flat-rate subscription offers could emerge and allow transport companies to rely in part on contractual recurring income.
The new distributors
The ultra-internet-connected 21st century has seen the rise of the platform and sharing economy. Agile start-ups offer commercial solutions based on a marketplace and smooth the meeting between supply and demand.
As soon as a player (Apple Store, Booking.com, etc.) succeeds in acquiring a large consumer base, the distribution costs levied by these platforms become excessively expensive.
Currently, airlines are struggling to implement their New Distribution Capability standard, the internet giants Tripadvisor and Expedia are not innovating, Google no longer seems to have the ambition to further conquer the travel sector, and Uber is cautiously transforming its application into a MaaS solution.
By 2030, a new generation of high-performance digital assistants powered by artificial intelligence will invade our daily lives; they will be the new intermediaries between consumers and sellers.
More than ever, the way is clear for a still unknown actor to emerge and create an unavoidable digital interface to book the services of travel and transport companies in a different way.
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