Dynamic Pricing in Aviation

Challenge

Estimating customer-specific demand structures is one of the key challenges in developing innovative pricing strategies. Our client, an international aviation corporation, faced the challenge of reviewing and continuously developing newly developed models for estimating customer price elasticity.

Approach

At the project's outset, the diverse data sources and data preparation pipelines underwent careful exploration, followed by a review of the existing elasticity models and R codes. After a multi-month review phase, the fully documented and revised R code was delivered and transferred to new markets and routes in collaboration with the client. In an ongoing collaboration, the model is iteratively developed and benchmarked. Strategies are tested to apply the client's model to high-dimensional data structures as efficiently as possible. To achieve this, we use methods from recursive partitioning combined with fluctuation tests of the model parameters.

Result

The developed models for calculating price elasticities are part of an analytical pricing strategy and have been successfully tested in various markets. The optimized prices are intended to be displayed during flight bookings and implemented into a production environment in the future.