Article ID: | iaor20082683 |
Country: | United Kingdom |
Volume: | 43 |
Issue: | 4 |
Start Page Number: | 425 |
End Page Number: | 441 |
Publication Date: | Jul 2007 |
Journal: | Transportation Research. Part E, Logistics and Transportation Review |
Authors: | Iakovou Eleftherios, Pachon Julian, Erkoc Murat |
Keywords: | programming: nonlinear, yield management, lagrange multipliers |
This paper develops a non-linear programming model to design optimal corporate contracts for airlines stipulating front-end discounts for all nets, which are defined by combination of routes, cabin types, and fare classes. The airline’s profit is modeled using a multinomial logit function that captures the client’s choice behavior in a competitive market. Alternative formulations are employed to investigate the impact of price elasticity, demand, and competition on optimal discounting policies. A case study involving a major carrier is presented to demonstrate the model. The results indicate that airlines can increase revenues significantly by optimizing corporate contracts using the suggested model.