Today we will show one of the most common mistakes airlines and OTAs make on their revenue management strategy that is costing them millions in profits every day.
After the pandemic we all know demand will come back slow and price competition will be more important than ever as we discussed on “The Pricing War is Coming”.
Even though being the cheapest is always a great way to boost revenue, we will see how some companies do this up to a point it becomes negative. This happens when you are the cheapest but your next competitor is much more expensive. Why would you ever want to be more than 10% cheaper than everyone else? We will fragment the analysis in two scenarios.
Trusted Brands
If you are lucky to be working with a well known brand in your market, that’s the ideal situation. You still need to be the cheapest option to get the majority of clicks on channels like metasearches, but you don’t need to cut your competitors by a lot. Actually, you just need to be one unit of currency lower than your next cheapest competitor, to avoid ties and assuring you’ll be appearing first everywhere.
This is a clear example of a known brand like eDreams that is a whopping 46% cheaper than its next option on Kayak, which doesn’t make any sense.
Airlines fall on this trap too, let’s see Lufthansa here being 20% cheaper than the rest on Skyscanner. We could also make the argument that customers would even pay more to buy directly from the airline before using any of the other OTAs appearing on the list.
Generic Brands
If instead you work for a company that is not so known yet or has a generic brand, that’s fine too. You still want to be number one and steal all those clicks. The difference in this case would be that you need to check who you are competing with. If your direct competition has a lot more brand value, then you could consider being the cheapest by at most 5–10%, but never more than that. If a customer won’t buy from you even on that discount, it’s likely they won’t at a lower price either. So don’t lose money on your actual sales by being too cheap and focus on just being the first one. And if your direct competition are also generic brands, you can stick with the one unit of currency difference and that is enough.
Final Thoughts
This simple pricing hack is costing millions to a lot of companies and is one of the easiest ways to increase the slim profit margins on flight sales especially during these tough times.
However, you may think it’s impossible to track every route and every date combination to fix this issue completely. There are automation tools that will do all the heavy lifting so you don’t have to. You can also do it manually on at least your top ten routes and some random dates daily. This is not ideal but it’s always better than nothing.
So remember, being first is great but don’t leave money on the table.
