Appia: Bringing Three Key Innovations

1) Real-Time Pricing Engine

As yields on many O&D's continue to be driven down by excess capacity, aggressive competition from no-frills carriers and a customer base demanding simplified, less restrictive fare structures, traditional network carriers need more than ever to bank on their strengths and price their fare products according to their real market value. In a highly competitive, volatile and dynamic environment such as today's air travel industry, this means understanding and quantifying their customers' purchase behaviour, identifying their market advantage and optimizing their fare schedules to match each customer profile's willingness to pay.

ExPretio Appia system can help airlines achieve these objectives. Its technology, based on years of high-level academic research, allows for the optimization of fare schedules while explicitly considering customer purchase behaviour, pricing actions of competitors as well as network structure, and in particular the interactions between itineraries sharing common flight legs. ExPretio's unique real-time pricing technology, the Real-Time Pricing Engine (RTPE), is based on bilevel optimization methods incorporating a discrete choice model that recreates the current situation on each market, computes choice probabilities for each alternative and optimizes the airline's fares so as to maximize revenue. This powerful modeling paradigm that is ideally suited for complex pricing problems. It can handle gigabytes of raw data and provide invaluable insight into the market strengths of an airline, thus helping it to optimally position itself against its competitors.

2) Dynamic Capacity Management Framework

The allocation of seats to distinct and sequentially closed booking classes, usually called yield or revenue management (RM), has become a central commercial process at virtually all airlines, from small regional carriers to long-established national flag-carriers. However, classical and still largely-used RM methods are based on rather strong assumptions that have, in recent years, been challenged by the rise of low-cost carriers and the wide-spread use of Internet.

As traditional RM approaches are rendered less appropriate by the new commercial reality of the Airline Industry, many experts in both academic and industrial circles have been suggesting the accounting of customer behaviour and the incorporation of choice models into the RM framework. Such a modeling approach is indeed more suitable in a highly competitive and volatile environment with a knowledgeable customer base (having access to virtually complete and real-time information through the Web) and simplified fare structures.

ExPretio's Appia system incorporates several choice models into a series of software solutions for airline revenue optimization. In particular, ExPretio has developed powerful dynamic capacity management framework (DCMF) for airline seat allocation, which allows an airline to dynamically optimize seat allocations by taking into account observed customer behaviour, current market conditions (its own and its competitors' fares) as well as network structure.

3) Joint Revenue Optimization

Although pricing and seat allocation have traditionally been, for theoretical, technical and organizational reasons, treated separately by a majority of airlines, there is growing interest toward the adoption of joint revenue optimization (JRO) approaches that would simultaneously resolve these two aspects of the revenue optimization problem for a maximum impact on airline revenue. From a commercial point of view, it is clear that revenue depends directly on both price and quantity of seats being offered, and that synchronizing these elements within a single, coherent business process, backed by powerful and integrated decision-support tools, can only lead to further revenue gains.
While it remains a challenging endeavour whose success has, in the past, been hampered by the lack of appropriate tools, ExPretio strongly believes that the future of airline revenue optimization lies with JRO. Towards that end, ExPretio has developed a unified decision-support tool that combines the power of its RTPE with the flexibility of its DCMF. The resulting tool allows for the joint, simultaneous and coherent resolution of the pricing and seat allocation problems faced by a typical network carrier.