The New Rules of Revenue Optimisation: Historical Data Analysis and Experimentation

In today’s airline industry, Revenue Optimisation (RO) is no longer just about better forecasting.It’s about continuously adapting to a dynamic and noisy marketplace. Competition is intense. Demand patterns shift in response to macroeconomic tremors, unobservable competitor moves, changes in consumer sentiment, and increasingly complex customer segments. Against this backdrop, airline pricing and revenue management (PRM) leaders face a tricky question: How do we make the best pricing decisions when everything keeps changing?

At ADC Consulting, we believe there are two essential capabilities for answering that question:The application of advanced, causal models to estimate a granular and high-fidelity willingness-to-pay (WTP).The ability to test price interventions and validate new models quickly through structured experimentation (XP).Separately, each is valuable. Together, they form a continuous learning system that powers more innovative and effective pricing. And that’s what modern Revenue Optimisation is really about.Many PRM leaders are re-evaluating how they estimate customer price sensitivity. Traditional price elasticity models in aviation assume we can observe all the factors that drive both pricing decisions andpassenger demand. But we can’t. When models overlook key variables—say, an unobserved competitor fare drop, a regional event shock, or a slow macroeconomic shift—elasticity estimates can become counterintuitive:

• Business travellers appear more price-sensitive than leisure ones
• Elasticity doesn’t flatten near departure
• Fare engines consistently recommend prices that are too high

To address this, advanced teams are turning to causal econometrics:

• Panel data methods(e.g., Interactive Fixed Effects) that capture latent variables without needing to observe them directly
• Double machine learning (DML)to balance flexibility with statistical control
• Instrumental variables (IV)for cleaner separation of price and demand

This is the new standard for scientific price elasticity estimation. But even these models face limits if they only rely on historical data. That’s where experimentation comes in.Structured price experiments allow airlines to test hypotheses directly in-market. Done right, they provide clean, causal evidence about how customers actually respond to price changes.

This is especially useful when:

• Launching new products or fare bundles (no historical baseline)
• Exploring price points outside your historical range
• Validating or refining elasticity estimates from models

Advanced experimentation techniques like multi-arm pricing tests, switchback testing, and time-to-departure segmentationmake it possible to:

• Map entire demand curves
• Cancel out seasonal or external shocks
• Quantify elasticity with best possible accuracy

Take fare family gaps: rather than debating if a €35 or €50 price gap between Basic and Flex is optimal, test multiple options across routes and segments—and let the data tell you.Revenue Optimisation is not a one-time initiative. It’s a system that sharpens itself over time. We call this the XP + PE feedback loop: Use econometric models on historical data to estimate elasticity and flag uncertaintiesTranslate those insights into specific pricing ideasRun controlled experiments to validate or refine the ideaFeed results back into your models to update predictions and improve future decisionsThis loop not only improves predictive accuracy but also boosts organisational confidence in pricing decisions.The most innovative PRM teams use this loop to:

• Prevent overpricing that kills demand
• Avoid under-pricing that leaves revenue on the table
• Move faster on innovation, from ancillaries to bundles to dynamic offers

Final thought: the future is adaptive

Even the most accurate elasticity estimate has a shelf life. Markets move. Customers change. Competitors react. The best way to stay ahead is to combine scientific insightwith operational agility.

At ADC Consulting, we help leading airlines do precisely that: embed structured, rigorous experimentation and advanced price elasticity modelling into their day-to-day pricing decisions.

This isn’t just better revenue management. It’s what modern Revenue Optimisationlooks like.

Interested in learning more?

We’ll be at the World Aviation Festival 2025 in Lisbon.