The airline industry has relied on so-called “dynamic pricing” for its pricing since the 1980s. The prices for flights are adjusted to the current market demand. The strategic goal of this principle has so far been to be able to address a large number of customer segments according to their individual willingness to pay. For this purpose, various variables, for example the departure time, the flight route and the length of stay, are included and the flight price is calculated on this basis. The application for the DIGITAL LEADER AWARD 2020 shows how the Luftahnsa Innovation Hub is trying to revolutionize this approach.
Photo: Lufthansa Innovation Hub
“This strategy has hardly changed to this day. Instead, increasingly fierce price competition means that revenue managers have to get by with falling margins,” says Kristian Weymar, Senior Venture Development Manager at the Lufthansa Innovation Hub, explaining the current challenges in a dynamic airline market. Due to this initial situation, the Lufthansa Innovation Hub, as the central digitization and innovation unit of the Lufthansa Group, has set itself the task of developing a software solution for innovative pricing that provides advantages for both airline revenue managers and customers: REVENEO.
With REVENEO, revenue managers should be able to develop new sources of revenue and customer groups. It is also intended to increase customer loyalty and satisfaction. For the passenger, REVENEO is also a new type of ticket offer that better caters to their individual needs.
The starting shot was fired in June 2019. The concept for the new software solution was developed together with the revenue management of the Lufthansa Group and inspired by Netflix, Spotify and Co. Interviews with customers and colleagues from the Group served as an important point of reference. The corresponding needs could be derived from these discussions and incorporated into the development.
Just two months later, the technical implementation of the software solution began with the aim of making the solution scalable and efficiently usable through 100 percent automation. In particular, the fact that the “lean startup” principle was used led to the first customer-centric and agile prototype being launched in October 2019 with the SWISS Airlines Flightpass. This “10-card for flying” convinced both customers and airlines. “All of the KPIs defined in advance were met or exceeded, the new customer rate of 21 percent was well above the target value of 15 percent”, Weymar describes the success of the first test.
As a result, the project gained further supporters within the group and the second MVP went live with the Austrian Airlines Flightpass in December 2019. Here, too, all of the KPIs defined in advance were met, which is why we have been working steadily on expanding the range since then.
Photo: Lufthansa Innovation Hub
In the course of the development of REVENEO, a new kind of “test and learn” culture was established within the Lufthansa Innovation Hub. Features developed at short notice were quickly tested on the market, customer surveys and analytics tools provided important information for product optimization in weekly sprints. As a result, features that were well received by customers could be further developed and improved and applications that did not work could be quickly discontinued.
REVENEO is an airline-agnostic white label solution and can therefore also be used for all airlines outside the Lufthansa Group. The landing pages are simply created in the respective design of the airline. The basic infrastructure contains a payment engine for processing payments, a booking engine for the fully automatic booking of tickets and a revenue accounting engine for the correct booking of the generated sales.
The various price modules range from the aforementioned ten-trip ticket to a type of rail card model and auction procedures for flight tickets. The price modules can be integrated fully automatically and without manual effort into the basic infrastructure, which gives the revenue manager full transparency and autonomy in testing and implementation. Kristian Weymar: “Today we can proudly say that the high level of automation of the software means that no manual effort is required to operate a new price module.”
The Lufthansa Innovation Hub with REVENEO has succeeded in looking beyond the boundaries of the industry and adapting pricing models from outside the industry and is leading to a completely new approach to the pricing of flights. With subscription models such as the SWISS Air Lines flight pass and the Austrian Airlines flight pass or the discount card, which is similar to the Bahncard model, both airline revenue managers and passengers can benefit from more individual pricing and automated processing in the future.