Transparency in Cruise Ferry pricing

Whilst Yield Management and Revenue Management have been around for many years, in the early days the distribution of pricing remained limited to certain channels. With the discipline originating in the airline industry, this was typically limited to their own reservations systems, Global Distribution Systems (to Travel Agents), and direct booking with the carrier in question.

Complex fare rules and structures made the travel agent earn every cent of their commissions explaining these to the consumer. Irregular travelers would have a certain dependency on travel agents, although as travel frequency increased, the regular traveler gained an understanding of themselves and could start potentially bypassing the agents.

Cue the arrival of the internet, and direct access by the consumer to book with the airline themselves. In the mid ‘90s, Alaska Airlines introduced web bookings, and a little later, online check-in. Fares became simplified, and online booking, coupled with electronic ticketing, put control of their travel destiny firmly in the hands of consumers.

And whilst Low-Cost Carriers (LCCs) had been around in one guise or another for many years, this trend saw them take off significantly. Pun intended. Travelers now had access to a full range of schedules and ticket prices, along with the rules and restrictions on which to base their travel choices. Sure, there were some complications, such as hidden ancillary costs that on occasion required a little more investigation, real-time fare availability was tricky from a distribution perspective, and some felt the loss of the personal touch, but overall, the consumer made the switch willingly, in large part because of the transparency offered by the booking process.

You may wonder why we discuss airline operations in a cruise ferry blog. At the time airlines were “going direct”, having had years of revenue management behind them, the vast majority of cruise ferry organizations were still publishing printed brochures with fixed seasonal price structures. Highly attractive, yes, but often complex to interpret (and costly to produce).

For example, you could travel to the continent in the summer, when price plan B was applicable. Unless you chose to travel on a crossing that was on a Friday, in which case it was price plan A which was applicable. And that price plan A then differed based on the type of cabin you wanted to book. Other options may be available, for example, pre-booked meals, a vehicle space, or other entertainment, all of which needed calculation by “flipping through the pages”.

Bookings were done on a Product Code basis, somewhat akin to the early airline-fenced fare types, but due to all the different add-ons, this resulted in a huge number of product codes. Very often new product codes were created for particular combinations that were either sold only once or were direct clones of the same combinations that the booking agent could not locate. In one of our earlier implementations, when analyzing product codes to assess a more streamlined fare hierarchy, there were more than 16,000 codes to deal with, yet the bulk of the bookings were led across perhaps 1% of these.

For some cruise ferries, the early adopters saw the need for change not long after the airlines. They simplified the pricing structures, implemented inventory controls and restrictions in the reservations system, and moved to online booking engines. However, 30 years later there are still a significant number of operators who are still making use of brochure-based fares.

So what benefit does a move to more dynamic fare structures offer?

From the operator’s perspective, one of the key areas is being able to adjust pricing on individual sailings based on demand for the various resources that a passenger is likely to consume. Where you have a non-performing sailing in a high season period (think Price Plan “A”), you can reduce the pricing slightly without creating special discounts or promotion codes. Similarly, an off-peak period sailing which shows a surge in demand can be almost instantly priced higher. 

Specific resources can be priced based on utilization or fill rates, and combined for a final price. For example, if a specific category of cabin is filling quicker than expected, pricing can be adjusted for that category only, whilst maintaining cheaper rates for other categories. Where vehicle space is running out, you can choose to protect the remaining vehicle space for higher-paying passengers, or you could price said vehicle space higher.

When implemented correctly, this more dynamic pricing structure then lends itself to the passenger booking experience and gives it transparency.

The consumer can instantly see the result of their choices. As part of the booking flow, websites will often show calendar views of the lowest pricing for the selected date and surrounding days. Nothing new there, as we see across many industries. However, now the consumer can navigate and select the options that best suit their needs. From the initial selection of the best date, they are then able to select a cabin type, being presented with all the relevant pricing. Similarly, they can choose vehicle space, meals, and other services to completely customize their journey. Technology allows both summary views of any restrictions as well as the ability to drill down into detailed versions, without the need to flip to page 873 of the brochure. Whilst they may not have 100% insight into the operator’s logic around the price structure, it is easy for the consumer to see that pricing on day X is cheaper than day Y, and make their plans accordingly.

Paraphrasing Bob Crandall on Yield Management, namely “Selling the right space to the right passenger at the right price”, the use of a dynamic pricing structure allows the operator to publish pricing in a way that is transparent to the consumer at the time of their decision. The operator publishes their “right price” for the space at that point in time, and the consumer has the instant ability to determine if that right price is, in fact, right for them.

Setting up the correct pricing structure is not a one-size-fits-all approach. It involves a detailed analysis of consumer preferences, macro and micro trends, and operational and market characteristics.

Summing Up

Although a shift from static, brochure pricing does involve some additional capabilities and decision support systems, the flexibility and immediacy of implementing accurate data-driven decisions is certain to yield substantial increases in revenues for the operator, as well as enhance consumer satisfaction.