By Dr. Uri Yerushalmi, Co-Founder and Chief AI at Fetcherr
Lost luggage, canceled flights and overbookings might eventually be some of the best things that happened to the aviation industry.
Why outdated technology is the problem
The airlines are going through chaos, and outdated technology and infrastructure are clearly the culprit behind the chaos. The main reason behind the chaos is that airlines’ outdated tech is based on manual processes and cannot be automated to handle today's volatile times. There is a lack of employees running those systems in the airline industry in all departments. Moreover, the existing legacy systems are linked one to each other, where failure in one system creates a chain reaction. Such a structure creates a need for centralized and real-time technologies that will solve the problem by automating many of the manual processes today.
Next generation of pricing systems that were overlooked for decades
For example, look at aviation pricing systems. Many outdated systems are either rule-based expert systems that were defined manually based on market dynamics that are no longer relevant or systems that assume linear relations in the market, which no longer exist.
The technology that was used till Covid-19 was based on revenue rules and historical data, and as long as the markets were relatively stable, there was no need to look for new pricing models. However, the new reality post-covid has changed the airline industry dramatically. Technologies that didn't exist decades ago, like new computational capabilities and AI-based pricing and inventory management models like deep and reinforcement learning, are now essential to solve the post-covid problem while changing the structure of the industry by automatically self-adjusting the market needs in real-time, reflecting to the airline and end-customer the correct amount of seats available on any flight, avoiding overbooking, providing new opportunities for personalization and increasing customer loyalty.
How pricing technology upgrades will positively impact the industry
The airline industry has changed dramatically. Volatility is the new normal: demand changes, strikes, manpower shortages, storms, and more. Therefore, the airline industry has become much more complex and less predictive of current technologies. In complex and volatile markets, revenues cannot be managed anymore. Revenue management systems were suitable for traditional and stable markets. The airline industry has transformed. The solution is evolving and moving forward to continuous pricing methods - like the E-commerce and Algo-Trading sectors. These new technologies will impact volatility factors (overbookings, staffing shortages etc.) in several ways:
- Estimating in advance the probability that such events would occur and taking that into account when making micro decisions. For example, once the system can predict the probability that a particular flight would be canceled and the impact of such a cancellation on the airline revenue - the pricing decisions would be handled differently.
- Trying to affect the probability of such events to occur - like optimizing the number of overbookings to be minimal while maximizing the airline's revenue.
An Automated Aviation Industry
Looking at the transition of the e-commerce industry during the last decades we can see how it has benefited both retailers and customers. We can expect the same transitions in the airline industry: from the ability to cancel and get immediately refunded to changing travel destinations seamlessly, on the airline side automation reduces cost and increases efficiency - eventually increasing customer satisfaction.
The airline industry's future is not just selling flights and extra leg room. It’s to supply the whole travel experience seamlessly. By using cutting-edge real-time technologies, the airline industry is going to offer a holistic tailor-made experience that will benefit both the customer and the airlines.
The post covid chaos can be seen as the last straw forcing an old industry to go through a significant automation and technology upgrade process that it should have gone through decades ago, but could not, for various structural reasons. After such a technology and automation upgrade, the airlines would not look as they did before.
About Dr. Uri Yerushalmi, Co-Founder and Chief AI at Fetcherr
PhD in Computational Neuroscience. Chief AI algo trader, neuroscientist, AI researcher, manager, and programmer. Experienced in business, management, and entrepreneurship. Former CEO and Head of AI for a major algo trading firm. Three decades of experience in software development and AI.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
