All’s fare in love and war: is aggressive pricing a new competitive reality?

Transcript

Carlos Ozores:So before we get started, I want to just make a brief introduction. So with this panel, we have a broad cross-section of members from the LCC community, the full-service, as well as technology providers. So all of us remember about 10 years ago, there was a fundamental change in how airline pricing worked. You started to see the beginning of airline unbundling and the introduction, introduction of ancillary fares. So in the beginning, the traditional carriers, the full-service carriers who were in financial trouble at the time, quickly embraced these new tactics as a means of generating additional revenue and began charging for features that were once included in the, in the base fare, such as checked bags, seat assignments, while also selling a lot of complementary services. insurance, hotel rentals. And at first there was customer backlash. In fact, some airlines like Southwest saw this as an opportunity of something not to do. But over time, I think we've all just become accustomed to the fact that this is just how it is, and, you know, the practice has stuck. Now, for a long time, this type of pricing was mainly limited to domestic routes and sort of short-haul regional routes to the Caribbean. But now sort of We were just talking about the entry of long-haul LCCs like Level in the region. We're starting to see this type of strategy, of pricing strategy, encroaching the long-haul routes as well, and we're seeing this also spreading to other markets. For example, carriers in Latin America have recently been— the full-service carriers have recently been introducing this kind of pricing. So this is sort of a change in the practices. Now, in terms of the execution, until now most of these ancillary products were priced in a pretty static way. So whereas you had revenue management for the actual base fare, the ancillaries were typically a fixed amount, so let's say $25 for a checked bag, irrespective of the amount of demand for that product or irrespective of the customer who's willing to buy it. So it's almost as if the ancillary pricing is still kind of legacy. And what we're seeing now with technology combined with just the huge swaths of data that airlines have their hands on is that they're actually beginning to have a more dynamic approach to RMing these ancillaries. as well as, you know, moving into dynamic pricing, where essentially you can charge customers what they're willing to pay. And so this is sort of the new frontier. So in this next panel, we're going to talk about and try to understand how effective these current pricing practices are, as well as what impact we think technology is going to have on pricing in the future. So first, I want to start with you, Javier. You know, you've been on the full-service carrier side, but then for the last several years, you've been making life difficult for full-service carriers at Vueling, now at Viva. So how effective do you think this new crop of sort of, let's say, the basic fares are for competing with ULCCs? And is this the right approach long-term for full-service carriers?

Javier Suarez:Well, I think it is definitely a good move. I mean, it's surprising the amount of time it's taken some airlines to come up with the basic fare. In the market where I'm actually operating now, which is Mexico with Viva, We just saw Aeromexico coming up with their basic fare, I think like a month ago. And all they're pretty much doing is like, you know, from the lowest fare they have, they just reduce their bag and the seat. And, you know, they're still selling without lowering their fares, but they're actually getting additional ancillary revenues. So that's, you know, a great thing to do. I just flew from Mexico to Chicago a couple of you know, a month ago, a few weeks ago, and bought my ticket with Aeromexico, and I ended up paying $30 per bag in Mexico and another $30 in Chicago on my way back. So yeah, I think it's a good move, to be honest.

Azim Barodawala:Okay.

Javier Suarez:So the basic fare, they got it right now. It's going to be a bit more difficult to come up with the basic cost to start competing with ultra-low-cost carriers, but maybe there is this basic cost somewhere.

Carlos Ozores:Absolutely. And so I want to pass the ball to you, Tamur. I know you touched on this briefly on the last panel, but you know, we've been discussing sort of these practices on the short haul. You know, you oversee the Lufthansa Group, all of the brands including Eurowings, so you also have a low-fare brand in your family. How do you see the pricing practices evolving on the long-haul market? Do airlines need to treat these markets differently from the short haul?

Tamur Goudarzi:Well, obviously, yes, there are certain— I think product features that the customer expects on a long flight. And the question is now to segment those customer groups that asking for premium services and those customer groups who say, yeah, I want to have just a basic product and then à la carte, I buy on top what I need. So, and I think while we are definitely competing in a certain segment, I mentioned this before also with new fare types, the new tooling— and indeed this is really a revolution ongoing— the new tooling in terms of I wouldn't say dynamic pricing, but dynamic packaging offers you really also go much more in terms of differentiation, upmarket and premium, and link fare or flight-related products with non-flight-related products. And I think when you do that on top of a new distribution form, you have a whole new universe of opportunities and chances to add value and also price those values. And I think it's not just a race to the bottom, but it's certainly going to be a race for the premium and for the— for hitting exactly what the customer wants.

Carlos Ozores:You mentioned dynamic packaging, so I want to ask you, Lukas. So Allegiant, I mean, you make a living off of selling a low base fare, and then once you have the passenger in your grasp, you sell them additional services to improve their travel experience. And so you're generating— I was just checking last night— about 40% of revenue from ancillaries, which is actually quite impressive. So how much, how much gas is left, do you think, in the current generation of ancillaries? What needs to change to achieve that next sort of step change in ancillary revenue per passenger?

Lukas Johnson:Yeah, that's a good question. So as you know, you went over the last 10 years, as you were explaining earlier, initially mid-2000s is more about introducing new products, and you just start out products and put certain pricing to that. In the last 5 years, it's been more about individual pricing on each of the, you know, each of the products. And where we're headed over the next 5 to 10 years is the personalization of each of those prices to the consumers coming in. You know, there's not going to be another huge surge, I think, in new products. You know, I think most of the basic things in your ticket have already been thought of and are being charged for. But now it's about maximizing the take or the, you know, price that you can get on it for each individual person. So everybody's going to have a Okay, thanks.

Carlos Ozores:And you talk about personalization. I think this is a word that we're going to be hearing recurring from now on. And we all sort of expect a personalized experience everywhere we go— Amazon, Uber. So, Azim, if the, you know, this new frontier of airline pricing is going to leverage the big data and the predictive analytics, what are some of the ways that you see in which technology is going to allow airlines like Allegiant, like, like Viva, to generate more ancillary revenues or just more revenues in general per passenger?

Azim Barodawala:Yeah, I mean, we, from our standpoint, we don't just think about just the ancillary standpoint of things. We think about the entire package to a certain degree. So I think over the last 10 years, I mean, I remember 10 years ago when folks started talking about charging for bags, it was considered sacrilegious. And now it's considered standard. But you can only unbundle to a certain extent, but to a certain point. I think everybody recognizes that. So after that, like Lucas said, it's about how do you think about what's the next frontier? And one of the key frontiers that we think about a lot at our company is how can you take, you know, a ticket that may have already been sold at a particular lead yield, and if demand conditions change, find a way to drive incremental revenue even on that same seat that's already been sold. I mean, that's really where we focus, you know, 100% of our attention today. I'm in helping airlines figure that out, and there's a lot of really promising work that's being done. And also figuring out, you know, how do you find the right passenger? How do you use machine learning to target the right passenger to make the right offer to move to an alternative flight and then be able to resell that seat at a higher yield?

Carlos Ozores:Okay, well, you're talking about Personalization. How do you find this when you go on to Amazon? It's almost uncanny how well they seem to know you.

Lukas Johnson:Yeah.

Carlos Ozores:So this is a question for all of you, really. You know, what are we learning as an industry from the Amazons, the eBays, the Ubers, and how is that going to influence the pricing? I mean, how is that going to change what's going on today? I'll start with you, Lukas, I guess, kind of going back through.

Lukas Johnson:Sure. So, you know, what you're finding is that obviously, just like Amazon, people that have a specific purchase pattern of specific type of products, they like to go certain destinations. Certain destinations have links to specific hotels, or there's a certain kind of profile type that, you know, if me or Javier have the same taste, you know, he's more likely to purchase the same kind of items. So what you're finding is this large stream of data of kind of linking between all the different product types that people want, and you can offer to a new customer coming in. You know, say they have all these different, you know, indicators about them that they. may be more interested to purchase certain products.

Azim Barodawala:I was just going to say that, you know, in the work that we've done so far, it's been interesting when you think about particularly that with the specific question of what makes a passenger flexible to move between a flight and another flight. Is, is it really price? And I would say most, most airlines would think that what you offer a customer to move would be the number one driver, but it's actually the fourth most important driver about— in terms of predicting whether or not a customer would move between flights. And that was incredibly surprising to us as we started deploying our machine learning models on the datasets that we have. So yeah, it's pretty cool.

Carlos Ozores:So it's the 4th. So what are the influencers that you've seen?

Azim Barodawala:The first one is the number of passengers on the PNR. And as you think about it, the more nodes that you have, the more people that you have to actually think about moving. That is obviously incredibly important. The second most is what's the— what is the difference in time? So it's clear that people are valuing time in this case more than what you're even offering them in terms of money. You know, and that's the second one. The third one is how far in advance do you let a person know? You know, obviously, and this makes sense, if you let somebody know 7 days before, maybe they have more chance to actually move their schedule around. These kinds of insights are not sometimes obvious ones. You would think that, hey, I give somebody a really big offer, they're going to move. So it's not really about how much money you offer. It's more about finding the right passenger to make the offer to and use data to do that.

Carlos Ozores:So let's see, Javier, how do you see these companies influencing?

Javier Suarez:Well, I mean, similar to what Lukas just mentioned, I mean, the one thing we admire most about like companies like Amazon is the way they have been able to personalize their offering. Yeah, we would love to to understand and to manage data the way they do it. And I think we're moving in that direction, but we're still definitely far away from them. But again, you know, like looking into like booking patterns, you know, previous transactions, what other customers are doing, being able to micro-profiling and coming up with relevant recommendations so that we increase our revenues. That's, that's the challenge and that's the thing they do best. And that's why You know, their market cap is a bit bigger than ours.

Lukas Johnson:Yeah.

Carlos Ozores:So if we think about some of the obstacles or risks to broader adoption of this, so what's, what's keeping us back or what's keeping the industry back from a sort of widespread adoption of personalization? And what should we be concerned about?

Tamur Goudarzi:Yeah, definitely. I mean, we are, we are laggards in terms of finding the right customized product. So are we catching up? So what kept us back was, of course, certain IT infrastructures. Which are not so easy to be replaced overnight because you have running systems and you cannot just take them out for 2 or 3 weeks and then say we start to, you know, put it all together again. So that definitely is something that kept us back. Also, the use of data was distributed in many data pods. In the Lufthansa Group, we have 85 different data pods. So a huge project for us is to unify this data pod and then, you know, mine those data, obviously, for for those offers where you want to combine not only the classic flight-related topics, be it excess baggage or advanced seat reservation or any other of those obvious things, but you would like to bring it together with your 4 times flown New York. Now on the 5th time, we offer also a ticket to the Mets or some, some other show. So when you bring other elements together, and that I think will be in the future really the key to go upmarket, go premium to hit exactly what the customer wants. And I think that is something that's still some time off, but this revolution is ongoing and definitely we are into it with huge investments. We have still one very important advantage. While we are not as good in data mining yet, or we're not as good in all those personalization yet, we have the advantage of the proprietary information of the flight. And that's something even now the big digital giants cannot copy. So, and if you have that, that's something you can work on, and I think that's really an advantage that we shouldn't give away.

Carlos Ozores:Okay, well, one of the themes of the panel is precisely how these new pricing strategies allow the full-service carriers to compete more effectively with ULCCs. But what I hear you saying is that, you know, the legacy carriers are oftentimes bogged down by antiquated and challenging IT Does this actually— should we expect the LCCs, the ULCCs to be the early adopters of this personalization and perhaps increasing the gap against full-service carriers?

Lukas Johnson:Yeah, I would agree with that. You know, most— if you looked at most of the introductory or new product offerings the last 10 years, it's all been started by us or Spirit or Ryanair or, you know, a number of other LCC or ULCCs around the world. And it's not purely just a business model standpoint. It's also just the ability to go out and try new things and to think about moving the business much more quickly and nimbly. And I think that DNA permeates through most of the low-cost space, that you're always out there trying to find an incremental dollar for each of your passengers. And so I think, you know, in terms of, you know, the IT infrastructure is a little bit stronger in a lot of the larger carriers, But in terms of making a push internally and getting a commercial voice, it's stronger in the low-cost space.

Carlos Ozores:And so I was going to ask you, going to turn to—

Azim Barodawala:I was just going to make a point that the, the interesting thing when we think about what are the limitations, like why isn't this— why are, you know, is the industry lagging to a certain extent if it is? But, you know, I think it's sometimes what we've seen is a reluctance to, to descope things down to a manageable size to give it a shot, to try it out and see if you can learn not kind of system-wide but learn in a very small kind of controlled environment. And of course there's other folks here I'm sure that more from the technology side, other companies at this, even at this conference, and I'm sure that they would share this sentiment with us and the partners that they work with. And I mean, just to give you a great example, we, we want— this isn't something that we continue to do, but we had worked with a carrier once about trying to figure out What would predict certain things in terms of certain behaviors for their customers to drive incremental revenue. It was really funny because we were trying to figure out how they could sell more insurance because travel insurance is such a valuable product. The thing that was the biggest driver and the biggest predictor about whether or not somebody was going to book travel insurance was— it was completely unexpected, but it was the device on which they were purchasing. There was a statistically significant difference if somebody was purchasing on an iPad versus any other device. I mean, even an Android tablet, desktop, mobile. So the point is, is that the airline can change the booking experience based on the device somebody's booking on. If they know somebody's booking on an iPad, why don't they actually surface travel insurance at the top of the booking flow? Because they know that the likelihood of that purchase is much higher. And these are the kinds of things that airlines should be doing. Like, we obviously don't do this at all, and— but it was just an interesting insight that we picked up in our— through our work.

Carlos Ozores:It seems like you enter into sort of this murky water, delicate territory, where I think it was a few years ago, was it Orbitz who had— it was Orbitz or Expedia— they had detected that Mac users had a higher spending power, and so they would charge— they could detect if you were a Mac user who was coming on the site, and they would offer them more expensive products than PC users. So, you know, what are some of the risks that this would have a backlash on customers?

Azim Barodawala:And I'm not suggesting here that you would charge different pricing. I would just say that if there's a proclivity of passengers who book on a certain device to book a certain product, they have indicated an interest in it. Not charge them more, just make it like surface it earlier in the process for them. It would be the same price as if you were booking it on a PC or on a on a Samsung device, but why not make it easier so that the actual take rate goes up? I completely agree with you, though, on the idea of, you know, different pricing for different types of individuals just based on, you know, the device they use, for example. Right.

Carlos Ozores:So now in terms of actually developing the solution, so I'm just going to use the example of Volantio, who has the backing of a cross-section, an interesting cross-section of carriers from the full-service IAGs all the way to JetBlue. Guys, when you guys are developing these solutions, you know, are you developing them in-house? Are you buying them from third parties? And what are some of the— what does it take to actually get this done?

Lukas Johnson:I'll just chime in real quick before everybody else. We tend to develop everything in-house when we're doing it. It doesn't mean that we don't talk to other companies or third parties about different product offerings, and sometimes they do make sense and we will test things out. Because we tend to move in-house, you have some advantages, some disadvantages. You know, it just depends on what style product. You know, you tend to have more rich data when you're using it yourself. You're, you know, not as worried about sharing data with kind of a third party, losing certain customer information or some kind of information security information on that side. But certainly, you know, if somebody else has a product developed, it would be great.

Javier Suarez:In our case, it's a mix of both. I was just having a chat with him, and, you know, we're building something that is similar to one of the products he's offering, and it's definitely a mix. I mean, one of the challenges we have, in addition to, like, dealing with complex data with different sources of data, is also retaining talent, bringing the great talent and retaining this talent, because, you know, we all know it's a talent war.

Azim Barodawala:Yeah.

Javier Suarez:You know, this, this talent like data scientists, it's in really high demand. So if I'm a data scientist, I'm, you know, more willing to jump into a startup where I can become a millionaire like in 2, 3 years. Now, if you jump into an airline, you know, Lufthansa is not going to be paying you, definitely not going to be giving you the chance to become a millionaire in 2 years, or not even ourselves. So that's one of the challenges we have.

Carlos Ozores:And how about at Lufthansa?

Tamur Goudarzi:Yeah, I think it goes both ways. So for example, for us, we have a budget of €500 million for the next 2 years, so to say, for digitalization overall, which includes some of the elements we just discussed. That goes very much as a budget, and we do it with our own people, but we don't always have the right people, so we also have projects with external parties. Here the key is to make it modular so that you're easily easily can, you know, link to a system which is very highly complex. So we have to find increasingly more ways to work in a hunger with all the players in-house, but also with the external parties, so that we can get product quickly, as you mentioned, quickly on the road, even maybe failing some. And the classical, you know, agile startup kind of way of working is something we are trying to entrench much more into our DNA. Like in 2 weeks, for example, we're doing a pitch night in New York where we allow B2B interested startups to, you know, pitch for certain new developments with us. And we will see if something comes out of that that we can link. But the key is modularity, because I cannot just promise somebody that something's going to be implemented if I know it's number 20 on the IT list, or number 30 even. So I need to find ways to, to become also more agile as a big conglomerate like we are.

Azim Barodawala:And I'd just say that, you know, we— speaking from the standpoint of startup, the airlines are actually changing and they're doing a lot of great things from the standpoint of looking at the fact that they need to be partnering with smaller companies and they need to change the way that they think about how those connections work. So there's one school of thought, and typically in the past it was that, well, you know, if You know, startups would go and talk to airlines and it would be just one of the other things that somebody has to do amongst the other 50 things that they would want to have to do on a daily basis. That doesn't work typically. I mean, it can work, but it's very difficult. But now what you see some carriers doing, which is really exciting— I mean, Qantas is one example through their Avro program, IAG through Hangar 51, El Al has Cockpit in Tel Aviv, and and JetBlue has also done it through their technology ventures arm, is to really engage the startups and bring them in in an environment where it's a very limited period of time and it's a proving ground. IAG is a great example. I mean, they had 400 companies apply to this thing. They picked 7, and they, you know, we were fortunate, but they funded one, you know. So they, so they've gone through that process and they've vetted it down to the ones that they feel are most viable. And it works really well. And it's something that I think more carriers should consider.

Lukas Johnson:Okay.

Javier Suarez:Carlos?

Azim Barodawala:Yep.

Javier Suarez:In our case, as I said, you know, we're using a mix of like our own development and then partnering with third-party companies. I think it has to do with the size of the airline. Probably Lufthansa can afford having like 200— Ryanair, they can afford having 200 IT people like working on coming up with solutions. But like airlines our size, it's probably much better to like partner with companies that are definitely more advanced technologically than ourselves. So I think the size of the airline also limits the kind of stuff that you can do internally.

Carlos Ozores:Okay. Now, in terms of actually realizing the benefits of these new technologies, so in order to personalize, you know, to a certain extent you need the actual customer to come to your site or to your mobile app, but it has to be a direct sale. Not exclusively, but you would think that the more direct the engagement is with the customer, the likelier the possibility that you will be able to understand who that customer is and to generate some kind of an upsell. Now, I just want to— I don't know how many of you in this audience use Google Flights, but to me, it's remarkable how Google, without ever spending a dime to market Google Flights, all of a sudden became at least my de facto fare search. And, you know, I can't imagine life without Google Flights anymore. How concerned should the airlines be about essentially being disintermediated by the likes of the Googles, the Facebooks? Is that, is that a threat?

Lukas Johnson:Yeah, I mean, it's absolutely a huge looming threat. It's not just for the airlines, but obviously the OTAs. It's more or less replicating the functionality plus, you know. And so I think what will be interesting is if you look over the next 5 or 10 years, the The trajectory of Google now becoming the biggest travel site in the world within a short period of time is certainly threatening on the OTA side, but on the airline side, it's something we're evaluating. Obviously, we book everything in-house. It's directly through the website, so we've never dealt with OTAs or GDSs, and that standpoint of, look, we're going to continue losing more and more share of the search just from Google Flights being such a great transparent product. And I think that over the evolution of the next couple of years will be interesting to see how airlines either embrace or, or try to push away, you know, the Googles and Amazons of the world.

Javier Suarez:Again, it has to do with the size of the airline, how, how well-known the airline is in the region where they operate. I mean, for us, we're just— we're right now entering the U.S., launching a couple of routes in the U.S. I mean, it is great to have short-term at least. It's great to have like a vehicle like Google Flights so to reach customers because otherwise you would not reach a— you know, you cannot have like a marketing budget enough to reach the entire U.S. population. So in short term for us, as long as you have a good negotiation with them, it is good. Now, other airlines, you know, if they're already well known, you know, they're not adding value, just, you know, like getting a commission out of them. So that's the way we see it.

Azim Barodawala:I mean, Google didn't spend a dime to market it, but they spent 7 billion dimes to buy ITA Software. So that was— I mean, for They bought them for about $700 million, I think, if I remember correctly. But I mean, that was the backbone. And you've got to remember that Google is the port of call for search. And search isn't just limited to, you know, did the Yankees win last night? It's limited— I mean, it's everything. So they are the— they can— and they control the real estate as well. So they can show you those great flights and everything. And it's sticky once you start using it.

Carlos Ozores:Yeah.

Azim Barodawala:So airlines really do need to think about intermediate or intermediation in, in new terms today because of the fact that they are being disintermediated by new players. Right.

Carlos Ozores:Okay.

Javier Suarez:You know, if they, if they end up doing what, what has happened in other industries and they, let's say they end up controlling the commercial function of all airlines, right? Let's, let's go for this like very aggressive scenario, will still be the cheapest, you know, the lowest cost operator in the world. So I think, you know, they don't have a plan to come up into actually, you know, like having a flight operation. So if we see ourselves as a factory of producing cheap seats, then I believe we'll still survive.

Azim Barodawala:Yeah.

Javier Suarez:That's like something that lets us sleep at night.

Carlos Ozores:Well, I was going to say that Amazon started flying freighters, so you never know.

Javier Suarez:Well, yeah.

Tamur Goudarzi:So just to add, I mean, we don't want to become the Uber driver, so we don't want to be just an operational unit. We would like to really control as many value-added parts of the chain of the travel universe, you might call it, from inspiration to post-flight experience. So how do you manage that? It might be in competition with the low-cost carriers. Cooperation with some of these giants. But I said you have to be aware of your proprietary information, and you have to create new products, value-added products that people value. It's not just search and recommendation. It goes beyond that. You have to really hit the customer sentiments. You have to even exceed it. And I think that's something where also Google is far off. Yeah, far off so far. And but it's a threat. And I think it's also a race. So in that sense, we really have to hurry and to catch up or even, you know, work on those elements we can just differentiate ourselves from those players.

Carlos Ozores:And so actually, one term that we haven't heard is loyalty, you know, but when we think about— actually, when we talk about data and knowing, truly knowing your customer, an important component of the revenue of legacy carriers or network carriers comes from their loyal customers. And so how can airlines leverage the RM— sorry, the FFP data? How can they marry that with RM to be able to generate even more revenue from their high-value customers? Are we seeing airlines actually take advantage of this technology and this data?

Lukas Johnson:Yeah, I mean, absolutely. You know, loyalty programs, the backbone of personalization in the next coming decades. And it's, you know, the longer the carrier has been existing, the more data they have behind their customers. And you can already see carriers now predict just by certain people's shifting and booking behaviors or product selections whether they're taking another carrier or whether they have switched jobs or, you know, if there's a different purchasing profile. It's also leading to certainly different personalized offers, which we keep talking about. But the loyalty program, because you're giving up so much of your information, That's in effect what you're, you know, the airline is getting is information from the person and loyalty from that sense that they're going to keep booking over and over again with them. And that's going to lead, you know, as companies over the next couple years roll out more and more big data platforms, the loyalty programs are going to be the core of that because somebody coming in that you know nothing about is a very different story to what you're pitching for a booking flow than Okay.

Carlos Ozores:When we were talking earlier about personalization, it seemed to me that a big component of this is actually on the ancillary side. It's like, how are we going to offer our customers something additional that they might value to enhance their travel experience? And the thing is, though, I feel like the big thing that people are talking about now is dynamic pricing, you know? And in essence, this is the ability to price based on Price the time of day, based on the day of the week, based on the month, based on the year.

Lukas Johnson:Yeah.

Carlos Ozores:the actual base fare according to truly who the customer is. You know, airline pricing is still sort of beset by some antiquated filing practices. So you still have to go through ATO PICO. You have limited filings. So it's really inventory that's controlling the pricing. There's no such thing as sort of a stock market type real-time pricing change. But what I hear is that now with dynamic pricing, sort of we're on the verge of airlines being able to change prices instantly, continuously throughout the day depending on who's buying, what's happening in other markets that are substitutes. How do we see dynamic pricing being rolled out in the industry? Maybe, Azim, can you start?

Azim Barodawala:Yeah, sure. I mean, I think it's definitely, it's definitely where airlines want to go. I mean, it's kind of— and airlines have been on the vanguard of this from the beginning, just from the beginning of actual revenue management systems and being able to identify segments of passengers based on other attributes, maybe, you know, days in advance of departure, you know, whether or not they're spending a Saturday night. I mean, things like that that were pretty simple to charge different pricing. I think the thing that we all need to be very careful about, though, as we start talking about this personalization and dynamic pricing is just, you know, how far is too far and what permissions do people are going to— like, what permissions are people going to give? And I mean, the best example of this is really just what is going to be happening on— I think it's whatever is May 15th or 16th with GDPR in Europe. And the fact that it's, you know, customers and travelers may say that I have not consented to having this type of information used in this type of manner. And only if I explicitly consent to this type of information being used in this type of manner, can you do it? You know, so I think there's going to be natural constraints to how dynamic the dynamic pricing can become, though I would say that moving from a world in which you can only do a certain amount of filings per day and things to a world where prices can be set more frequently is definitely going to be a good thing for the industry.

Carlos Ozores:Okay. Do you guys see this?

Lukas Johnson:Yeah, I agree with it. You know, in terms of the personalization, there's that gray area you were talking about earlier with Orbitz and pricing certain, you know, booking flows differently depending on device type. And, you know, I think it's important for— you know, it'd be hard for me to think that we could go out and charge each of these, you know, panelists or yourself different prices for the same exact product type. Instead, you know, we think about it in terms of offering different, you know, promotions or different— you know, we can show you a different different selection set, but I don't think, you know, at its core level, the price that you guys are buying for each of those products is— can meaningfully change. Okay.

Javier Suarez:I was gonna say, I mean, the technology will definitely be there so that you can price it differently for the exact same product, but, you know, then, you know, there's probably going to be like some legal constraints about that.

Azim Barodawala:Or ethical constraints. constraints, more importantly, you know, I mean, whether that, you know, you want to get there.

Carlos Ozores:Okay. Before we— I want to make sure that we allow some time for questions if there are any questions in the audience. Does anybody— can't really see anybody because of the lights, but does anybody have questions or— no?

Azim Barodawala:All right.

Carlos Ozores:Well, I do have a question. So, you know, Neville has been actually— when he was talking, he was talking about the, you know, self-driving cars and sort of— there's a brave new world in front of us. I think if you had asked somebody 10 years ago what the world would look like today in terms of airline pricing, you know, probably half of the room would have guessed and the other ones would have been way off the mark. So I'm going to ask you a question and I don't expect you to get it right, but I think it would be interesting to know from people who are sort of thick in this part of the business, how do you envision— you know, what's airline pricing going to look like in 5 years' time?

Azim Barodawala:So, I get to go first. Well, look, again, you know, we're— we potentially have a little bit of a unique view because we're focusing on a particular— we really focus from the time a seat is sold until departure. And our opinion has been that the industry has done a good, pretty good job between the time at which somebody starts considering traveling until when they pull the trigger for their ticket. But there's still this whole period of time after that fact, which we call post-booking, where there's opportunities to revenue maximize. So I think, you know, our hope and our belief and our thesis is that there's going to be a lot of value that airlines can continue to drive for themselves even after that period of time, so that ultimately what you're doing is driving higher RASM, you know, driving higher unit revenues on the same asset base over time. And I would say that's, that's where we see this going. And you're doing it, you know, your flexible passengers benefiting, your last-minute travelers have to get on a flight are benefiting, and the airline's benefiting through greater revenue.

Carlos Ozores:How do you see the world in 5 years?

Tamur Goudarzi:Yeah, yeah, maybe, maybe we look, as I mentioned, we look at the whole travel universe. So from inspiration to a post-flight experience, and you're trying to commercialize those touchpoints in between. So the purchasing points where the customer actually interacts are probably changing, and that's also a question of change of the distribution. So I think we will see much more convergence of distribution with pricing and revenue management. So that will become really, I think, an amalgam of topics. And what we definitely will see is much more a— well, if not personalized to individual, but personalized to certain customer groups-oriented packaging. And here I think we will probably not see any more booking classes. I think we will probably not see any more booking classes which we currently have, but we will see really a price point, many, many price points added then by value-added products that the customer wants. There has to be certain bundling to make it for the customer also digestible, and then you can still add topics, but you have to find those right bundles as well. And I think, as I mentioned, non-flight products will be added to a large extent, and that altogether I think will move in a completely different universe in terms of what airline products are, or what products are sold. And I think that's quite a revolution that's coming.

Carlos Ozores:Okay, how about you guys?

Javier Suarez:In line with you, and in terms of, you know, The way, you know, we're going to be pricing and it's going to be very modular. But I want to believe the, you know, we're going to have like teams that are way more digital than those we have now, you know. And I keep telling my team about an example like 40% of our revenue comes from ancillary revenue and the other 60% from like traditional revenue, fare revenue. The size of our ancillary revenue department is like 1/3 of our 5th of the revenue management department. So, you know, we definitely need to not only continue working on the ancillary revenue, but also kind of like digitalize or leverage more on technology on the other side of the revenue. So I believe, you know, we're gonna have like very small teams of very digital people more than the traditional analysts, like, you know, changing fares and doing the stuff that like we're still doing, which is—

Lukas Johnson:Yeah.

Javier Suarez:Not going to last for long.

Carlos Ozores:Before I go to you, Lukas, actually, I want to ask you a question. You mentioned something about the team. So if you look at, for example, an airline's operations control center, you know, many airlines will have a team that includes somebody from crew, from maintenance, somebody who sees the passenger. When we look at RM, like maybe in your experience in Viva, do you have teams that include for any given market somebody that represents or somebody that's doing the inventory, somebody that's doing pricing, somebody is doing ancillary, maybe loyalty. Is there some level of integration at the organizational level or are these sort of still silos? Javier, I'm kind of still— you brought it up and—

Javier Suarez:We were actually sitting with a consulting firm a couple of days ago. Actually, it was like 4 days ago. And they started telling us about the cultural— like the need to have like the culture for alignment, blah, blah, blah. I'm like, you know, don't even bother. culture is already there. I mean, we're not a legacy airline in which like the revenue management department is so powerful they know best. No, no, no, no. Our revenue management department, you know, the people in our revenue management department, they know how much they can benefit from working together with the e-commerce team, with the commercial IT department. So there's, you know, I think there's a big difference between a young LCC and a traditional airline. There's no need for a cultural change in our case, probably in Allegiant as well. But it definitely is a problem for much bigger airlines, I think.

Lukas Johnson:Okay.

Carlos Ozores:I want to come back to this because I think it's critical to actually realize the benefits.

Lukas Johnson:I'll answer both of them. So we have a very similar culture. You know, everybody in pricing, revenue, ancillaries, all doing the same thing, sitting with Network capacity, scheduling, e-commerce. So it's more or less one organization, and they're all— everybody's responsible for revenue at the end of the day. So it doesn't— there's no infighting between each of the groups, and we don't have a lot of legacy structures where there's, you know, a lot of silos between it. In terms of the, you know, where are we going to be 10 years from now?

Carlos Ozores:Maybe 5.

Lukas Johnson:5 years, 10 years, one or the other. Certainly, you know, I think we're going to be much closer to dynamic or fluid pricing, like you were saying. You know, it's not going to be a lot— it's going to be less and less about traditional buckets and more about business rules and a booking flow that somebody's coming in and there's all these different adjustments based on the data and personalization of what you know about that customer coming in. And to the first point, I think, you know, airlines have done a good job of segmenting out everything they control, but the one optional thing that really haven't is they haven't done a good job of valuing the time and the flexibility of the customer, which is a product in and of itself. You know, so you have flexible fares and otherwise, but, you know, similar to canceling off or putting people on a different flight, there really hasn't been a ton of new development in that. And I think that's, you know, also something that airlines can be developing products for.

Carlos Ozores:Okay, thank you. So I see time's up and nobody's going to drag I know we haven't talked about Pragoso yet, but I want to sort of tie everything together. So I think we've been discussing— we've seen that airline pricing has come a long way. It's been through radical change, through unbundling, the ancillaries. And I think now we're on the verge of yet another era of significant transformation. You know, finally we have the technology to be able to actually leverage the, the mounds of data that airlines are sitting on to create a much more personalized experience. So travel is going to become much more personal. And now this should provide a boost to the airlines. This should provide a revenue boost, especially to those who can successfully adopt these new technologies. But I think the same way that airlines had to carefully manage the process of unbundling and making sure that the passengers understood what was going on and accepted this, and that there was no sort of regulatory backlash, although we've seen some backlash in other countries, it's going to be important that airlines also manage this transition carefully so that these new processes, new technologies actually produce benefits and stick as opposed to meeting with fierce resistance. So I'd like you to give a strong round of applause for our panelists. Thank you very much. Thank you, guys.

Azim Barodawala:Thank you.

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