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Maximising Revenue in the Airline Industry Under One-Way Pricing

Miguel F Anjos (anjos***at***stanfordalumni.org)
Russell C H Cheng (R.C.H.Cheng***at***maths.soton.ac.uk)
Christine S M Currie (C.S.M.Currie***at***maths.soton.ac.uk)

Abstract: This paper describes a methodology that has been implemented in a major British airline to find the optimal price to charge for airline tickets under one-way pricing. An analytical model has been developed to describe the buying behaviour of customers for flights over the selling period. Using this model and a standard analytical method for constrained optimisation, we can find an expression for the optimal price structure for a flight. The expected number of bookings made on each day of the selling period and in each fare class given these prices can then be easily calculated. A simulation model is used to find the confidence ranges on the numbers of bookings and these ranges can be used to regulate the sale of tickets. A procedure to update the price structure based on the remaining capacity has also been developed.

Keywords: Air transport, revenue management, simulation, yield management.

Category 1: Applications -- OR and Management Sciences

Category 2: Applications -- OR and Management Sciences (Airline Optimization )

Category 3: Applications -- OR and Management Sciences (Yield Management )

Citation: Journal of the Operational Research Society 55(5), 2004, 535-541.

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Entry Submitted: 04/03/2003
Entry Accepted: 04/03/2003
Entry Last Modified: 04/20/2004

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