What Is Continuous Pricing? How Will It...

The rollout of New Distribution Capability (NDC), the data interface built for the airline industry to transform how airlines distribute and sell flight content, gained significant momentum in 2023 as airlines expanded their NDC offers and adoption efforts.

Most NDC content remains similar to the established Electronic Data Interchange for Administration, Commerce, and Transport (EDIFACT) content, albeit delivered through a different channel. Airlines are still developing new content such as personalized offers, dynamic bundles, and other services (more on this later). However, there is one tangible, substantive difference between NDC and EDIFACT fares today, and this is the much-talked-about concept of "continuous pricing."

So, what is continuous pricing, and how could this new pricing strategy affect your corporate travel program? How does it relate to dynamic pricing? To address these questions, let's first explore how airline pricing has evolved through the decades.

Traditional airline pricing

In the early days of commercial aviation, airfares, regulated by the US government, were more uniform across routes and airlines. After Congress passed the Airline Deregulation Act in 1978, enabling carriers to set their own fares and routes, a revolution in airline pricing took off, with American Airlines leading the way. Its then-president, Robert Crandall, is credited with pioneering yield management, a set of pricing optimization techniques to maximize ticket revenue and seat occupancy on an aircraft. Eventually, this practice grew to include the broader revenue management strategies used across the airline industry today.

Supply and demand significantly influence this airline pricing strategy. If carriers price airfares too low, they may leave money on the table, but price them too high and they may wind up with a half-empty flight. So, as part of the new pricing model, airlines began setting different price points to meet the needs of various customer segments based on their willingness to pay (WTP). For example, carriers realized they could offer lower fares to people who book early and have more flexibility regarding travel dates (think price-sensitive leisure travelers). Then, they could display higher prices to those booking later with firm trip dates (generally, price-tolerant business travelers).

To offer a range of prices tailored to different types of travelers, airlines introduced a system that breaks down cabin classes (for example, business and economy) into fare classes. These fare classes, also known as "fare buckets" or "booking classes," represent specific price levels and come with their own set of conditions (e.g., whether a ticket is refundable, if a Saturday night stay is required, and how many reward miles you can earn).

As airline revenue management techniques grew more sophisticated, carriers needed a standardized method for exchanging the growing amount of data being shared with various distribution channels.

Enter EDIFACT

EDIFACT is a data exchange standard that has been employed by the airline industry since the 1980s to efficiently transmit information related to fares, schedules, availability, etc.

With the EDIFACT system, airlines must file airfares in advance with the Airline Tariff Publishing Company (ATPCO). ATPCO then distributes that information through various channels, including global distribution systems (GDSs) and other travel aggregators, before it's transferred to travel management companies (TMCs) and travel sellers.

When a traveler decides to book a flight, a TMC can present a fixed menu of options based on the current filed fares in ATPCO. However, this set menu limits airlines' ability to create alternative offers when the optimal price for an airline ticket falls between two reservation booking designators (RBDs) - a fancy term for the alphanumeric code representing the fare classes.

In the 1990s, revenue management strategies became even more sophisticated with the introduction of class-based dynamic pricing. Airlines began employing advanced algorithms and real-time data analysis to adjust ticket prices dynamically, responding not only to shifts in demand but also to market conditions, competitors' pricing, booking trends, and other factors.

In the 2000s, airlines gained the ability to file fares with ATPCO once every hour instead of once daily, and that's when many carriers began combining services together under "branded fares." "Unbundling," an a la carte pricing system that charges passengers for additional ancillaries beyond the base fare (e.g., checked baggage and in-flight meals), also became a popular trend.

As revenue management strategies and customer expectations continued to evolve, the industry sought a new pricing solution to address the limitations of EDIFACT.

Hello, NDC and continuous pricing

In 2012, the International Air Transport Association (IATA), a global trade association for the airline industry, began developing an alternative data interface called New Distribution Capability (NDC) based on the web-based XML data protocol.

With NDC, airlines bypass the need to pre-file fares with ATPCO, granting them the flexibility to generate an infinite combination of offers on the fly at the time of shopping. This setup is a key foundational element for airlines to create a fully dynamic shopping experience in which they can offer specific amenities and services at a specific price, all customized according to enhanced customer data.

This new technology has enabled airlines to adopt a more advanced airfare approach known as continuous pricing. An evolution of dynamic pricing (sometimes, the two phrases are used interchangeably), continuous pricing is not restricted by inventory rules or fare classes, allowing airlines to offer a virtually unlimited array of price points.

Dynamic pricing can use contextual details, such as time until departure and length of stay, that is accessible at the time of shopping to determine airfares without necessarily requiring additional personal information. With continuous pricing, airlines have the potential to provide indefinite price points and adjust airfares in real time according to supply and demand and clients' WTP. In theory, this means they can lower or raise the price of Seat 17B on Flight XYZ based on competitors' fares and market conditions at the time of shopping.

The impact on your corporate travel program

We are often asked whether continuous pricing is good or bad for a corporate travel program. The answer isn't straightforward as it depends on various factors, such as which airline is offering the fare and the level of competition on key routes. Travel managers may wish to collaborate with our consulting team to gain deeper insights into how continuous pricing could impact their program specifically.

Meanwhile, here are some key considerations to take into account:

At its core, continuous pricing is a revenue management tool for airlines to boost their earnings. While you may often find the lowest fares or exclusive deals available through NDC channels, this could be a deliberate strategy by airlines to create the perception of a better value through NDC, encouraging adoption of the new system.

Think of it like a sale at a department store: There's a 10% discount on a $100 coat and it's now listed for $90. However, three months ago, the full price was actually $90. Airlines can employ a similar strategy with EDIFACT vs. NDC content to make NDC fares appear more attractive. But just like the coat sale, these deals may be an illusion.

Continuous pricing allows airlines to maximize profits on routes where they have a strong industry presence - a tactic often referred to as "squeezing the lemon." Conversely, airlines may lower prices for routes where they face significant competition to attract more customers, resulting in potential savings for the customers.

Collecting more traveler information

Travel managers should be aware of the amount of valuable data airlines can potentially collect on travelers when booking NDC content. The more data airlines can gather about customers, the more they can determine which customer segment is booking a flight and price and package an offer accordingly, with business travelers generally paying more.

While NDC offers airlines deeper insights into their customers' booking habits, the move away from standardized filed fares in EDIFACT to a non-standardized continuous pricing environment could lead to a less transparent pricing experience for corporate customers. Consequently, this may make budgeting for travel and evaluating whether a corporate discount has been applied to an NDC fare more challenging.

All these factors demonstrate the importance of using a marketplace to shop and compare offers, rather than booking directly through airline websites. They also underscore the benefit of collaborating with a trusted travel management partner. American Express Global Business Travel (Amex GBT) can help customers safeguard offer creation, navigate complexity, and optimize the value of the corporate travel program.

It's important to mention that just because an airline has NDC inventory doesn't mean it automatically employs continuous pricing. Implementing continuous pricing requires significant infrastructure and investment and often creates internal challenges for airlines. Still, as NDC ramps up and airlines continue to transform their technological frameworks, we anticipate more carriers integrating continuous pricing as a key component of their revenue management strategies.

What can we expect in the future?

Travel managers should prepare for more changes to come. For instance, carriers are exploring a practice called dynamic bundling to create personalized packages of services and products. Building on the concept of continuous pricing, this approach focuses on delivering the right product to the right customer at the right price and time. By fine-tuning prices throughout the entire booking process, from initial fare display to the moment of purchase, airlines can further maximize their revenue.

Then there's IATA's One Order initiative, which aims to simplify the booking, ticketing, delivery, and accounting processes into a single order by replacing the existing Passenger Service System with order management systems. With this new technology, airlines will be able to apply continuous pricing strategies to various attributes (e.g., adjusting the cost of lounge access within a bundle). By streamlining and unifying these processes, One Order can provide carriers with more accurate and real-time data, thus enabling more dynamic and effective pricing strategies.

We recommend working with our Amex GBT Consulting team to navigate the intricacies of modern airline retailing and help prepare your program for these evolving technologies.

Amex GBT, a leading software and services company for travel, expense, and meetings & events, is fully committed to NDC. We have devoted significant resources and millions of dollars into integrating NDC fares into our booking channels, training our travel counselors, and adapting the new technology standard to better serve our corporate clients. We also are continuing to work with airline partners and technology providers to deliver the additional value and functionality that NDC and One Order can unlock for travelers.

Learn more about how we're building an NDC booking experience that meets the needs of our corporate clients.

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