Article ID: | iaor2010239 |
Volume: | 9 |
Issue: | 1-2 |
Start Page Number: | 152 |
End Page Number: | 170 |
Publication Date: | Jan 2010 |
Journal: | Journal of Revenue and Pricing Management |
Authors: | Belobaba Peter, Isler Karl, Fiig Thomas, Hopperstad Craig |
Keywords: | yield management |
This paper develops a theory for optimizing revenue through seat inventory control that can be applied in a variety of airline fare structures, including those with less restricted and fully undifferentiated fare products that have become more common in the recent past. We describe an approach to transform the fares and the demand of a general discrete choice model to an equivalent independent demand model. The transformation and resulting fare adjustment approach is valid for both static and dynamic optimization and extends to network revenue management applications. This transformation allows the continued use of the optimization algorithms and seat inventory control mechanisms of traditional revenue management systems, developed more than two decades ago under the assumption of independent demands for fare classes.