While the travel industry has faced unprecedented volatility since the pandemic, not all of the challenges have been brought on by COVID-19. Sustainability is yet another global issue causing airlines to rethink their processes.
Climate change has increasingly become a concern among the world’s environmentalists, as extreme temperatures are more and more the rule than the exception. While all industries contribute to global warming, the travel industry is unique in that it accounts for a large, ever-growing share of greenhouse gas emissions (GHG) – about 11 percent globally in 2019, according to an article by Skift. It’s also one of the most difficult sectors to decarbonize.
A recent study in the journal Environmental Research Letters projects that aviation will cause about 0.1 degree Celsius (0.2 degrees Fahrenheit) of warming by 2050 if the industry continues to grow at pre-pandemic rates. To put that into perspective, that’s more GHG than most countries emit.
Despite the challenges brought about by the pandemic, the International Air Travel Association (IATA) and its member airlines committed in 2021 to reaching net-zero carbon emissions by 2050. It’s an ambitious target, but one that can be aided by adopting new and advanced technologies.
Matching Supply to Demand Using Ultra-Accurate Forecasts
Airlines have long used software to forecast demand and provide pricing. But legacy methodologies only take into account historical data. As the industry recovers from the disruption of the pandemic and tackles new priorities in sustainability, that historical data has become less meaningful.
New, advanced AI takes into account millions of data points beyond previous years’ prices and demand, analyzing it to provide more accurate forecasts and more optimized pricing. These ultra-accurate forecasts can mean more confidence in matching supply to demand, resulting in higher seat utilization. Better utilization, in turn, means filling each plane to capacity for more efficient flights and less wastage – a key factor in meeting sustainability and net-zero goals.
Optimized pricing can also help airlines factor sustainability into their revenue maximization goals by lining up fares with the most environmentally-friendly flights and routes. In a 2021 McKinsey and Company survey of 5500 consumers across 13 countries, more than half of respondents were “really worried” about climate change and felt aviation should become carbon neutral in the future.
But even though customers say they prioritize lower carbon emissions, pricing is still the key driver to consumer behavior, for now. Airlines can utilize this knowledge to drive customers toward the most sustainable flights by pricing them lower than the more environmentally costly routes.
If airlines are able to identify the most desirable flight times across all routes, they can maximize capacity on those flights and reduce the number of flights for times and locations that are harder to fill. Filling the plane will minimize waste from flying empty seats, lowering carbon emissions.
Dynamic Pricing for Sustainability
McKinsey’s study found that 40 percent of travelers worldwide are willing to pay at least 2 percent more for carbon-neutral flights – about $20 for a $1000 round-trip ticket. And 36 percent of consumers said they planned to fly less to reduce their climate impact, although many consumers are currently less concerned about their own impact as travel slowed during the pandemic.
The study also reported that attitudes toward reducing travelers’ carbon footprint varied among countries and customer segments. Around 60 percent of respondents in Spain were willing to pay more for carbon-neutral flights, compared to 9 percent in India and just 2 percent in Japan.
This desire for carbon neutrality also varies by customer segment. Leisure travelers – such as those purchasing flights through a third-party online travel agency (OTA) – may be less willing to pay for a net-zero flight than, say, a business traveler who purchases a flight from a corporate travel agency.
Although it is still unknown how consumers and travel companies will change behaviors in spending and booking to be more sustainable, what airlines can take advantage of now is prioritizing sustainability while maximizing revenues through dynamic pricing. By implementing a dynamic pricing strategy, airlines can greatly minimize wastage, maximize revenue, and boost asset usability rates for their aircraft by introducing multiple price points for every seat, using accurate passenger segmentation based on shopping context for easy A/B testing. This knowledge can help airlines dynamically price fares based on willingness to pay and purchasing channels, allowing them to offer the right service at the right price to the right customer, at the right time and place.
Sustainability as an Ancillary
Air travel generates approximately 500 pounds of carbon emissions per 1,000 miles of air travel, per passenger. But flying is a necessity for millions of people each day, and there is currently no alternative for long-distance and low-carbon travel. For the environmentally conscious, one way to reduce their carbon footprint is by carbon offsetting, which can directly and easily encourage action to limit climate change impacts in the short term.
Carbon offsetting offers individuals and organizations a way to neutralize their portion of an aircraft’s carbon emissions on a particular flight by purchasing carbon credits, a rate-per-mile investment in carbon reduction projects. More than 30 IATA member airlines have introduced these programs through their e-commerce platforms, either directly or through third-party providers.
While revenue management platforms can already help airlines provide these carbon credits as ancillary offerings, advanced AI can dynamically price them so that they match a customer’s willingness to pay.
Families booking a vacation may be willing to purchase $0.01 per mile in carbon offset credits, while a corporate traveler whose company is focusing on sustainability as a corporate objective might be willing to pay $0.50 per mile. Regardless of the situation, the latest in revenue optimization software will be able to offer these offsetting ancillaries to the right person at the right price in the right place.
Other, often less obtrusive ancillary offerings can also help travelers prioritize environmental objectives. Airline e-commerce platforms could suggest electric vehicles when offering car rental packages, while hotel offerings could prioritize those that promote low-carbon and sustainable practices. These choices are often easier for a leisure traveler as they don’t directly represent an “additional cost” but rather an opportunity to choose a more environmentally conscious option.
Helping Corporations Meet Their Goals
Travel isn’t the only industry focusing on net-zero carbon emissions. Increasingly, reducing environmental impact has become an objective for many companies looking to position themselves as leaders in the 21st century.
But travel is still a necessity for most large corporations, and the highest-spending organizations for business air travel combined for around $12 billion in domestic and international bookings in the US alone in 2019. Of those 100 companies, nearly half have not only made public decarbonization declarations but have committed to doing so within the next decade.
As these companies seek out new ways to reduce their emissions, airlines are uniquely positioned to become their partners in sustainability by expanding sustainable offerings. Booking platforms that highlight the most carbon-efficient flights, lowest emission vehicles, and environmentally friendly hotels for corporate purchases and packages allow companies and their employees to book the reservations that best align with their net-zero goals.
Deep Learning to Reach Net-Zero
While McKinsey’s survey indicated that 40 percent of global travelers were willing to pay more for carbon-neutral flights, the latest customer survey from Skift found that only 14 percent of travelers stated they actually paid more for net-zero options when they travel. This “say-do” gap can be attributed to a lack of sustainable booking options, a shortage of clear environmental impact information, and high-cost barriers. Many consumers face competing priorities when purchasing travel services – saving money versus being environmentally conscious.
Airlines can help guide consumers to more sustainable actions by giving more visibility to environmentally-focused products and services, presenting decarbonization information in compelling and engaging ways, and encouraging travelers to make more carbon-conscious purchasing decisions by actively promoting environmentally-friendly options.
The Revenue Operating System® from FLYR uses deep learning, an advanced form of AI, to analyze millions of pieces of data, helping airlines reach total revenue optimization across fares, cargo, ancillaries, offer and order management, and e-commerce. Our digital ecosystem allows commercial teams to automate pricing decisions in real time, optimize total revenue across fares and ancillaries, and create personalized offers for travelers. Airlines can create trusted load forecasts to optimize capacity plans, direct marketing spend and energy toward higher-yielding results, and maximize customer conversions.
By removing the guesswork involved in implementing sustainable options for flights and ancillaries, analysts can focus on more strategic decision-making that helps the airline reach its net-zero targets.
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