How Branded Fares & Matrix Pricing will improve your total revenue
An opportunity to strengthen your competitive advantage
In the ultra-dynamic context of airlines, tariff innovation proves crucial to maintain a leading position in the competition. Two firmly established concepts, Branded Fares and Matrix Pricing, have profoundly transformed the way airlines market their offerings and maximize their revenues.
This article explores the evolution of this revolution, which began in the late 1970s, leading to the current challenge facing airlines: designing integrated tariff strategies within the framework of Total Revenue Management, embodying the holistic management of revenues.
The birth of fenced pricing
In the early days of commercial aviation, there was only one fare for all passengers, offering a simplicity that now seems distant. With the rise of commercial aviation and increasing demand, airlines quickly realized the need to adopt more complex pricing systems.
This led to the emergence of booking classes, allowing passengers to choose from different options based on their budget and travel needs.
The landscape of airline pricing was then profoundly altered by the deregulation of air transportation, initiated in the 1970s. This deregulation paved the way for competition and allowed airlines to freely set their fares, thus ending regulated fares. This new era of fare freedom led to a significant diversification of fares, giving rise to sophisticated pricing models.
Airlines began to introduce multiple booking classes, each associated with specific conditions and restrictions. The most common restrictions were (and still are) the length of stay (minimum and maximum), the number of days until a fare can be booked (advance purchase).
Much later, the inclusion or exclusion of checked baggage was introduced under the pressure of low-cost carriers.
These pricing strategies were mainly based on Fenced Pricing, with fares partitioned by their associated restrictions, allowing for price increases based on passenger profile and proximity to departure, regardless of fare class (quota) availability.
The main benefit is to segment the published fare offering according to passenger profile, which in practice mainly prevents business passengers from purchasing the lowest fares.
The possibilities for upselling, moving from a basic fare to a more flexible option, were limited and often operationally complicated, requiring manual intervention in reservation systems.
This approach proved incompatible with automation requirements and the evolution of online sales. Additionally, the industry had reached such a level of fare complexity that it became impossible to understand without resorting to automated pricing systems. This fueled a growing sense of fare opacity among passengers and travel agencies.
Fare families to bring order to pricing
Industries that apply yield management, and transportation networks in particular, offer capacity that is relatively stable over time. Meanwhile, customer demand is, in most cases, extremely seasonal.
For traditional business sectors, variations in demand are easily managed by storing production (material goods) or finely adjusting human resources (services).
However, for tourism and transport companies operating with high-capacity industrial assets (planes, trains, ships, hotels, amusement The advent of fare families proved to be necessary early on to make the offering more understandable for consumers.
Airlines began standardizing certain fare rules (especially change and refund options). However, technical limitations persisted for traditional carriers relying on Global Distribution Systems (GDS), making it nearly impossible to have multiple fare families associated with the same fare class.
Upsell options were tied to class availability, with upsell amounts often prohibitive for leisure customers.
Additionally, only airline websites had the ability to properly highlight the unique characteristics of each fare family to their customers.
There was then an untapped revenue reservoir: some consumers were willing to pay more for their ticket in exchange for additional services or increased flexibility; however, no fare offering was presented to them during their purchasing journey.
Branded Fares: the indispensable distribution standard
This is where branded fares come in: by transcending traditional pricing barriers, branded fares offer airlines the opportunity to create personalized fare offerings tailored to the specific needs of passengers. Choosing a fare is no longer simply a matter of booking class but an individualized experience where each passenger can select a package that meets their expectations, thus becoming the master of their own journey.
Well, that's the marketing pitch from those who created the standard. In practice, the standard is not as flexible and involves a high degree of uniformity in fare rules and upsell solutions, especially when it comes to applying them to negotiated fares.
The major innovation compared to fare families is the ability to sell within the same fare class (booking class) fares with different characteristics: specific fare rules, and even dedicated services.
69% of your passengers are willing to opt for a higher-tier offering (source ATPCO 2023 Shopper survey)
Other advantages include:
- Distribution of fare families across a wider range of distribution channels with a presentation allowing the traveler to choose an upsell (which before Branded Fares was only possible on airline's direct websites).
- The ability to systematically offer an upsell, regardless of the booking classes open for sale.
- Clear presentation of the benefits associated with each fare, including change and refund options, baggage, and onboard meals.
This last point is very important: while fare families only allowed for selling the same product onboard at different prices, Branded Fares allow for differentiated fares based on the services included in the customer experience.
Until now, two passengers sitting next to each other did not pay the same price for the same service. With Branded Fares, it is also theoretically possible that they may not have the same associated customer experience.
Branded Fares offer airlines the opportunity to create personalized fare offerings tailored to the specific needs of their customers, as well as their revenue management strategies. Choosing a fare is no longer simply a matter of booking class but has become an individualized experience, where each passenger can select a bundle that meets their expectations, thus becoming the master of their own journey.
Increasing conversion rates through Rich Content
Rich Content, in the context of Branded Fares and Matrix Pricing, plays an essential role in the customer experience. It's not just about presenting bundle contents and ancillary services; it's also about educating, inspiring, and influencing passenger purchasing decisions.
By offering rich and interactive content, airlines can not only present their offerings in visually appealing ways but also detail the benefits of each fare and bundle clearly and convincingly.
Rich Content goes beyond simple words and images; it's an immersive experience. Through explanatory videos, high-quality visuals, and precise text information, passengers can explore different fare options interactively.
This allows them to understand the additional benefits offered by each fare, thereby facilitating their decision-making process.
Moreover, Rich Content can present relevant upsell suggestions based on passenger preferences and the characteristics of each offer, creating a personalized cross-selling experience.
For airlines, Rich Content offers a unique opportunity to differentiate themselves in a competitive market. It allows them to tell a story, showcase the strengths of the travel experience, and create an emotional connection with passengers.
By combining captivating visual elements with relevant information, airlines can reassure their potential customers, thus increasing conversion rates.
Through the introduction of Branded Fares and Rich Content, the improvement of conversion rates is possible not only in direct sales but also across all channels and indirect travel agencies that support these distribution standards.
What makes this standard unique is that its implementation is conceived very early in the fare design process, implying a high degree of strategic cooperation between revenue management, marketing, and communication teams.
Rich Content is not just a visual complement to fares; it is a strategic tool for revenue enhancement. Implemented by pricing and distribution teams, it requires a high degree of tactical cooperation with sales and marketing departments.
One of the reasons why most traditional airlines have not fully seized all the opportunities offered by Branded Fares and Rich Content is that they have implemented these distribution standards without conducting a cross-functional project involving pricing and marketing.
75% of airlines worldwide have implemented Branded Fares (source ATPCO 2023 Shopper survey)
Matrix Pricing, the revolution enabled by Branded Fares
By offering the technical possibility to sell and promote multiple fare families for the same fare class across all distribution channels, new pricing strategies have become possible.
While many airlines today have migrated to Branded Fares only by transposing their fare families, taking advantage solely of distribution capabilities, with sometimes the implementation of a fare family without baggage under pressure from low-cost competition, a significant number of more advanced airlines have fully taken advantage of Branded Fares by adopting "Matrix Pricing" strategies.
Matrix Pricing goes beyond Branded Fares by allowing airlines to create complex packages, combining various services and upsell options.
This method relies on strategic fare segmentation, offering passengers a multitude of options and enabling airlines to maximize their revenues while instituting safeguards to avoid revenue dilution.
To fully understand the change instigated by a Matrix Pricing approach, it is important to note that total revenue optimization is no longer based on a single dimension (gradually closing booking classes) but on two dimensions: opening fare quotas and structuring upsell opportunities for each fare quota.
Given that in the current state of the Branded Fares standard, upsells are static rather than dynamic and rely on structural pricing strategies that are not intended to be changed too often, it is crucial to have a perfectly optimized Matrix Pricing strategy for each region, route type, and market segment.
Matrix Pricing is a strategic approach that only requires the implementation of the Branded Fares distribution standard. There is no need to subscribe to new options from GDS.
Airlines can thus create complex offerings in the form of bundles, integrating a variety of services and upsell options.
This method allows for finer fare segmentation, offering passengers a multitude of options and providing airlines with a powerful means to maximize their revenues.
Indeed, Matrix Pricing offers a holistic approach, allowing for systematic upsells regardless of booking class availability. It represents a true revolution in the flexibility and personalization of fare offerings, placing decision-making power in the hands of airlines and their passengers.
However, this evolution comes with significant risks of yield dilution, especially for high-yield customers, underscoring the importance of designing the matrix carefully.
For example, our experience in implementing Matrix Pricing for several airlines has taught us that the "Full Matrix" model is rarely relevant as it carries a high potential for yield dilution.
When demand aggregates multiple customer segments, mixing high-yield, leisure, and affinity segments, a subtle combination of "smart gradual," "fenced gradual," and "double fenced" models leads to a substantial increase in revenue.
The cross-sectional complexity of implementing the Branded Fares distribution standard and the technical limitations of ATPCO and direct website engines have led to an upsell construction between fare families that relies more on historical replication or alignment with competition than on a genuine search for the most efficient upsell structure to maximize revenue.
Thus, we observe that the "benchmarked" and "premium upsell" models are mostly implemented, while the "volume upsell" model proves to be more relevant for leisure customers. When considering the implementation of "volume upsell" and "double sell" models, we reach the limits of classical revenue management pricing and enter the realm of Total Revenue Management.
This disrupts the classical thinking patterns of traditional airlines, which have long been leaders in revenue management practices across all industries.
However, in this regard, they could learn a lot from the yield management practices of upscale hotels, cruise lines, certain theme parks, and even pricing techniques used by SaaS companies.
91% of your passengers are ready to purchase additional services through online travel agencies
(source ATPCO 2023 Shopper survey)
The Matrix Pricing transformation project is a venture that offers exceptional return on investment, with expected incremental revenues starting from the first year of implementation.
What will be the next innovation?
The evolution of airfares, from Fenced Pricing to the personalized offerings of Branded Fares, and to the sophisticated flexibility of Matrix Pricing, illustrates the industry's continued commitment to innovation and personalization.
In this ever-changing landscape, airlines that adopt these new fare approaches stand out as pioneers of the customer experience, putting power in the hands of passengers while maximizing their own revenues.
Rich Content proves to be the catalyst for this transformation, turning simple fares into engaging opportunities. By telling captivating stories, presenting benefits clearly, and establishing emotional connections, Rich Content guides passengers toward wise fare choices, thus promoting high conversion rates and long-term loyalty.
As for Matrix Pricing, it unlocks considerable revenue potential, provided the nuances of implementation are well managed.
While the industry has long held high expectations for IATA's NDC (New Distribution Capability) standard to free fare distribution from its historical constraints, and AI-powered shopping experiences have been tested for a decade, at Yield Tactics we firmly believe that another revolution is on the horizon: the transition from revenue management pricing to Total Revenue Management.
This transition will require the implementation of large-scale transformational projects to build the data infrastructure that will power a new generation of revenue management systems (RMS).
In the meantime, the implementation of Matrix Pricing represents an easily achievable intermediate step that allows for revenue maximization by adopting the most optimal approach between upselling to a higher-priced bundle and selling ancillary products.
Matrix Pricing models to maximize revenue
The essence of Matrix Pricing lies in tailoring the perfect strategy, upselling tactics, and pricing design for your business.
Selecting the ideal Matrix Pricing model, whether it's a comprehensive "full matrix", strategically paced "smart gradual" approach, carefully controlled "fenced gradual" method, or the nuanced "double fenced" model, is paramount.*
Complementing this strategy is the implementation of optimized upsell tactics, including the simple "benchmarked" option, enticing "premium upsells", "volume-driven" offers, and the dynamic "double sell" approach.
Moreover, achieving the right pricing matrix design is critical, whether it's "driven by public" fares, utilizing "offbeat mapping" techniques, maintaining a "hidden brand" allure, or employing a "secret matrix" methodology.
Fogether, these components form a robust framework for maximizing revenue and enhancing customer engagement within the Matrix Pricing paradigm.
Benefits of Matrix Pricing
- Implementing branded fares brings a plethora of benefits to your business strategy. By integrating branded fares, you can significantly enhance your upselling capabilities, leading to a remarkable 1.2% incremental revenue increase through heightened upselling rates Furthermore, incorporating rich content into your marketing efforts can have a profound impact on conversion rates, resulting in a notable 0.3% revenue boost derived from improved direct channel conversions. Moreover, embracing Matrix Pricing methodology yields substantial dividends, driving a commendable 0.5% incremental revenue growth by augmenting both yield and ancillary sales. These statistics, sourced from the comprehensive studies conducted by YIELD TACTICS between 2022 and 2023, underscore the undeniable advantages of adopting these strategies, albeit actual results may vary.
Why engage a specialized consulting firm to implement Matrix Pricing?
- Benefit #1: Proven expertise — Successful implementation of Branded Fares and Matrix Pricing requires deep expertise and strategic vision. By engaging a specialized consulting firm like Yield Tactics, airlines can benefit from high-level strategic guidance.
- Benefit #2: System knowledge — The implementation of these innovative concepts involves a deep understanding of distribution systems such as ATPCO, Amadeus, Sabre, and Travelport, as well as OTAs (Online Travel Agencies) and SBTs (Self-Booking Tools). Yield Tactics has the expertise required to navigate this complex landscape and guide airlines through this process seamlessly.
- Benefit #3: Independence from technology providers — During the implementation of Branded Fares and Matrix Pricing, some airlines may face high costs and extended timelines, often due to technology providers overestimating their level of involvement. Yield Tactics offers an independent approach, guiding airlines cost-effectively and insightfully, maximizing return on investment.
- Benefit #4: Flexibility and adaptability — Depending on the maturity level of the airline's pricing department, implementation can be complex, especially when it comes to integrating private agreements into a pricing scheme based on Branded Fares and Matrix Pricing. Yield Tactics offers Senior Consultants with strong expertise in pricing, who have already gone through this process with several airlines. This is also the perfect opportunity to conduct an audit of the pricing team's capabilities, standardize fare rules, and make tariff distribution processes more efficient.
- Benefit #5: A strong return on investment — Branded Fares could enhance your upsell rate, potentially generating an incremental revenue increase of +1.2%. The integration of enriched content could optimize conversion, potentially resulting in a revenue gain of +0.3% through improved conversion in indirect channels. Additionally, the implementation of Matrix Pricing could potentially amplify your total revenue by +0.5%, resulting from a potential increase in average fare and ancillary sales.
- With Yield Tactics, every aspect of your Branded Fares strategy is carefully optimized, offering the opportunity for maximum return on your investments in pricing and distribution consultancy.
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