As the New Distribution Capability airfare standard has increased in prominence in the business travel marketplace in recent years, so too has the concept of "continuous pricing." But what does that term mean, how does it differ from traditional pricing and dynamic pricing, and why should travel buyers care?
In order to answer those questions, it might help to review how traditional airfare pricing works.
Traditional Airline Pricing
Historically, using the EDIFACT data standard, airlines have filed fares in advance with ATPCO that have been limited to 26 "fare buckets," or booking codes, per flight. These buckets correlate to a letter of the English alphabet, and each code comes with its own set of rules. Once all the fares in the lowest-fare bucket sell out, no more bookings in that bucket can be accepted.
For example, if an airline has filed buckets of fares at $200, $250 and $300, once the $200 tickets are sold out, a customer will be presented with the $250 fare as the lowest available. In the non-NDC-enabled global distribution system, there is no way for the airline to offer any fare priced between those buckets, such as $225.
Using traditional pricing, when travel management companies "want to create an offer for a customer, they are trying to process the fares filed and figure out what rules are applicable to a particular itinerary," said AmTrav CEO Jeff Klee. "The offers are actually being calculated by the GDSs, the TMC or the booking tool based on what is filed by the airline."
Continuous Airline Pricing
The NDC standard has allowed for airlines instead to offer continuous pricing, which allows for any number of prices for tickets in the revenue management curve. A carrier still files those 26 fares in EDIFACT, but it also can make offers at any point between them in its direct dot-com and NDC-enabled channels. Meaning, the airline takes control of the offer in those channels at the time of the search and can make that $225 fare available, or any other price between the $200 and $250 bucket fares.
But just because an airline offers NDC inventory doesn't mean it uses continuous pricing. United Airlines has it, but American Airlines does not, at least not yet.
American this year removed certain fares from EDIFACT channels and made them available only in direct or NDC-enabled channels, but the carrier doesn't do an assessment of what the fares should be at the time of a search. The prices it offers still are based on those 26 filed fares, even if they are no longer available in EDIFACT.
United VP of sales strategy and effectiveness Glenn Hollister explained it this way: The core airline revenue management system does traditional pricing, with the 26 letter fares. For continuous pricing, an airline needs to buy another piece of software that works with the RMS that does the continuous pricing. "So, an airline needs the right infrastructure to do it, and once they have it, then they need to figure out how to implement it," he said.
United began using continuous pricing before the pandemic, but for several years it was only for basic economy tickets, Hollister said. Today, everything in the airline's inventory is available for continuous pricing—"available" being the operative word.
And just because an airline can offer continuous pricing, doesn't mean it does for every ticket.
For United, "when someone comes to shop, we make a real-time decision on whether or not we want to give a continuous price," Hollister said. "If we want to give a continuous price, that is what is presented. If [the customer] was not sure and said, 'Maybe I'll think about it and buy it this afternoon,' they may or may not see that price again."
That decision will depend in part on the carrier's revenue management systems' assessment of the market clearing price, or bid price, for that flight on that day, Hollister explained. If that bid price is far from a filed fare price, the carrier then would use continuous pricing. "We are not going to do a continuous price that is $5 cheaper than the filed fare," he said. "We will just use the filed fare at that point. But if the RMS says we should sell this [ticket] for $25 less or $50 less, then we would use continuous pricing."
Hollister also shared that through United's direct and NDC-enabled channels, about 40 percent of economy-cabin fares it sells are continuously priced. In the premium cabin, that figure goes down to 25 percent. In the economy cabin, when there is a continuous price, it provides an average fare that is 7.5 percent lower than what would be found in EDIFACT, he said. In the premium cabin, when a continuous price is offered, it averages 15 percent lower than the EDIFACT price.
Oracle began booking continuous-pricing fares with United when the company began using NDC channels earlier this year, said director of global travel sourcing and GPO Rita Visser, and she has been happy with it. "When we are getting NDC pricing from United, it's that fit in the middle of the road," she said, adding that "in a traditional model, from H to B, your one-way price might go from $225 to $275 [if the lower-fare bucket sold out]. By turning on NDC, the United dynamic pricing gives us a price point between those two. It's an H fare that is still taking our H discounts, but it didn't jump us up to the B that starts at $275."
However, Hollister noted that United uses fare rules for the inventory bucket below a continuously priced fare. "Typically, the lower value you are in the inventory buckets, the more restrictive the fare rules," he said. "Giving someone a continuous price and getting the better fare rules in the [higher] open bucket wasn't necessarily fair. If you are getting the cheaper fare, you should get the more restrictive rules. There are not always big differences in rules between two buckets, but sometimes there are."
Dynamic Airline Pricing
Visser used the term "dynamic pricing" when talking about United's continuous pricing. Some people use the terms interchangeably, but there is a slight difference between the two.
The International Air Transport Association distinguishes them by defining continuous pricing as an airline's ability "to provide indefinite price points." Dynamic pricing enables airlines to offer prices "based on contextual information available at the time of shopping, without necessarily having additional personal information." This information might include length of stay, time before travel, dates of travel, competition or remaining capacity to sell.
"Continuous pricing says, here is all the pricing," Amadeus senior director of global solution consulting Jay Richmond said. "Dynamic pricing says, which one do I offer?"
Dynamic pricing is not new, but what is new, according to IATA, "is the ability to adjust the price in real time without needing to file fares with a third-party system," which removes the constraints of having a maximum of 26 booking classes.
Richmond added that what else is new is that "in NDC, dynamic pricing can now consider elements that are personal in nature if it knows about the traveler or the corporation the traveler is traveling for."
Dynamic pricing also might include things like bundling. "It might dynamically add Wi-Fi to a fare because [the airline] knows the traveler and their history, instead of forcing them to take an a la carte approach," Richmond said. "An airline can dynamically put together the fare, the seat and Wi-Fi," because that is what the customer always buys, "and then maybe [the carrier] offers a discount. That can all happen in real time."
Bundling has been available in traditional EDIFACT pricing, but those attributes are defined and priced in a static manner, according to IATA.
United offers dynamic bundled fares, which is a fare with one or more ancillaries that the carrier prices based on the entitlements that a traveler or sometimes a company has, Hollister said. "We don't have much insight on it as we've only done one as a test, but if a corporate negotiates something in terms of pricing for an ancillary, that would apply too," he said. Frequent-flyer status is probably the biggest driver of that, he added, but there are some corporate contracts that have benefits, and some credit cards come with benefits.
Additional Insights
Though Oracle's Visser sees the benefit of continuous pricing, one challenge buyers are thinking about and how it might affect a program is "if somebody has a very specified contract and says when you buy an HE7NR [nonrefundable fare], your HE7NR is a discount of X percent," she said. "And this [continuously priced] H falls between the [filed] H and the B. If it isn't an HE7NR, what discount, if any, do you get on top of that? We haven't found scenarios where our discount hasn't been applied. But it's all coming down to learning and other conversations. We aren't tying ourselves into a fare basis, code-specific contract as a result of this. So, it could be both a pro and a con, depending on how you contracted your deals."
Visser said buyers should be open to experimentation "and having the right specialists across the board on the TMC side, on the OBT side, having some of that understanding on your own team," she said. "And if you don't have it, you really do have to rely on those two other teams. And you have to be open to not everything being perfect. But we are getting price points we wouldn't have in the past."
United's Hollister wants travel managers to know that just because someone may see a price discrepancy between their online booking tool and an airline website, it doesn't mean it's continuous pricing. "Talk to your TMC on why you are seeing that," he said. "TMCs are pretty good at diagnosing why. For United, we give real clear guidance for how to identify if it's continuous pricing. But there could be other reasons, such as inventory caching by the booking tool or a GDS. Or it could be they are pulling from the frontline different systems that aren't in sync for some reason."
On the other hand, Amadeus' Richmond said that one thing NDC may be doing is changing some expectations, such as one that multiple people booking the same ticket at the same time should get the same price. "In continuous pricing, that might not be the case," he said. "If two people are booking at the same time, they might see slightly different fares. A travel manager should talk with key airline partners about what they think or project the impact will be on fares and fare distribution for their top city pairs. … They [also] should know [continuous pricing] should create more flexibility for them."
For AmTrav's Klee, travel managers should be aware that "the airlines are not doing this so that they can charge less," he said. "I think the reality is, while airlines will say you will always get a lower fare or the same fare through an NDC channel that uses continuous pricing than through an EDIFACT channel, they accomplish that because they have these NDC channels, they then are more likely to keep the legacy fares higher so that they can discount in the direct or NDC channel. In other words, the fact that continuous pricing exists means that companies are paying more for travel. They are especially paying more if they are using a booking tool that doesn't connect to NDC."
Still, Klee wanted to make clear that the whole concept of the offers coming from the airline instead of being generated by the GDS or TMC is "a big step forward," he said. "This is a good thing, not a bad thing. There is so much complexity and infrastructure and processing power and errors that all happen because of this really old, complicated structure where a third party is figuring out what an airline wants to charge, which really makes no sense. There is no other industry that prices that way. Ultimately, the airlines will charge what they want to anyway. It's based on supply and demand."