Overall airline revenue model with customer choice behavior for a single flight leg


Güner E.

The 22nd Conference of the International Federation of Operational Research Societies (IFORS 2021), , Seoul, South Korea, 23 August 2021 - 27 September 2022, pp.35

  • Publication Type: Conference Paper / Summary Text
  • City: Seoul
  • Country: South Korea
  • Page Numbers: pp.35
  • Gazi University Affiliated: Yes

Abstract

Overall Airline Revenue Model with Customer Choice Behavior for a Single Flight Leg Muzaffer Buyruk, Ertan Güner After applying reservation limits to seat inventories and determining the number of seats for each fare class to optimize revenue gains, airlines have increased their revenues with ancillary products. Ancillary revenues were estimated to rise from 22,6 billion dollars in 2010 to 109,5 billion dollars in 2019 (IdeaWorksCompany, 2018, 2019). In this study, we offer an overall airline model with a customer choice behavior by extending the fare-locking option model in the literature and incorporating the other ancillary revenue products. We make three general research contributions to the literature. Firstly, to the best of our knowledge, a customer choice behavior model where the subset of fare products is selected in the presence of a fare-locking option over a single-flight leg has not been studied previously in the literature. Secondly, for the first time, we extend the fare-locking model to include the other ancillary products. Third, our study proposes linear programming approximations to determine the upper bound of an intractable dynamic program. Our work, first, introduces a dynamic programming model to identify the optimal sets and find the optimal expected revenue. Secondly, because the dynamic model, which also keeps a record of the fare-locking reservations, is intractable due to the high-dimensional state variable, we develop a deterministic linear programming model that gives the upper bound of the dynamic program. Lastly, we conduct numerical analyses.