An option‐based revenue management procedure for strategic airline alliances

An airline has to decide whether to accept an incoming customer request for a seat in the airplane or to reject it in hope that another customer will request the seat later at a higher price. Capacity control, as one of the instruments of revenue management, gives a solution to this decision problem. In the presence of strategic alliances capacity control changes. For the case of two airlines in the alliance and a single flight leg we propose an option‐based capacity control process. The determination of booking limits for capacity control is done with real options. A simulation model is introduced to evaluate the booking process of the partner airlines within the strategic alliance, considering the option‐based procedure. In an iterative process the booking limits are improved with simulation‐based optimization. The results of the option‐based procedure will be compared with the results of the simulation‐based optimization, the results of a first‐come‐first‐served (FCFS) approach and ex post optimal solutions.