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Optimizing Capacity and Price Management for the Travel and Transportation Industry

Information Strategy Consultant, IBM

Across industries, big data has generated big buzz – and the travel and transportation (T&T) industry is no exception. In fact, T&T CEOs rank the “information explosion” among the top drivers of transformation for their organizations.[1]  In this blog, I want to discuss some of the ways in which big data solutions can drive business results: dynamic pricing, optimized capacity planning and yield management.

Historically, the T&T industry has been an asset-intensive business. We have seen the industry expand to include providers with very few typical assets. Regardless of asset concentration, to remain competitive, organizations must find ways to optimize profit by gaining new insights into core industry assets: rooms, fleets and seats.

cruiseship.jpgOne key to profit optimization is effective capacity and price management – and that includes the daunting task of analyzing an ever-changing and seemingly ever-increasing amount of data. This includes information from direct and indirect customer interactions tied with all available in-house, competitive and complementary product or service pricing and capacity data sources. The outcome can be a complex, laborious, time-consuming and occasionally inconsistent pricing process.

Big data and analytics solutions can extract insights from massive amounts of data by detecting patterns, spotting correlations, facilitating predictions, etc. in real time. They can help T&T companies improve forecasting and planning, as well as enhance services to increase revenue and manage capacity.

Dynamic pricing analytics

Dynamic pricing analytics allow T&T organizations to analyze demand scenarios dynamically as competitors vary their fares. It leads to smarter, automated fare/rate adjustments based on more complete market and competitor data analysis.

Analysis of demand scenarios with competitor pricing helps establish the sensitivity of demand to price, and thus establishes each customer’s propensity to spend. This information could help an airline or hotel revenue manager create strategies to cater to individual customers. In addition, pricing models and simulations can help T&T companies determine the lifetime value of a customer, as well as determine the “next best action” in various scenarios.

Optimized capacity planning

Optimized capacity planning based on accurate segment-wise demand forecasting can improve asset utilization. With help from analytics-based insight, T&T companies can:

  • increase operational excellence
  • improve forecast accuracy
  • enhance return on assets
  • optimize availability of assets and
  • improve asset yield

For example, a hotel obviously wants to fill its rooms; however, it also must ensure that the rooms are clean and that appliances work, beds are comfortable and décor appropriate. This requires ongoing maintenance. Big data and analytics can help a hotel operator determine optimal capacity as it might not necessarily be 100 percent at all times. In addition, analytic solutions can help a company determine the right mix of competitive pricing to optimize capacity without sacrificing profitability.

Yield management; optimize marginal revenue

The keys to yield management are understanding, anticipating and influencing customer behavior so that the company can offer the right core and ancillary product mix with the right pricing strategy. Since this process involves consumer behavior and analysis of vast amounts of past data, it can be challenging. Big data and analytics enable automated dynamic inventory control and price rules to optimize marginal yields. They allow companies to more quickly model and react to market shifts with low latency data and faster analytics capabilities. In addition, marginal revenue from each revenue stream (such as a customer segment, ancillary revenue product, etc.) is optimized through a complex and automated interplay of inventory control and pricing rules.  Read how Go Voyages, an online travel company is Paris, is doing that

Insights that optimize capacity and pricing

Big data is no longer confined to the realm of technology; today, it is a business imperative. Through analytics, T&T industry leaders can develop insights to optimize capacity and pricing. Those T&T organizations that embrace big data for competitive advantage will be well positioned with the insights and agility necessary for success.

To learn more about IBM's solutions for travel & transportation, visit www.ibm.com/big-data/travel