A model of competitive airline revenue management interactions

In this article we develop a model of the interactions between the revenue management (RM) practices of competing airlines. The theoretical model is supported by PODS simulation results that highlight the important role of passenger spill between airlines on RM seat allocations in competitive markets. We show that typical RM system forecasters that unconstrain historical bookings without accounting for competitive RM effects result in a double‐counting of demand. Under current practice, the RM systems of airlines in oligopoly markets thus tend to generate higher forecasts, higher protection levels and, consequently, lower discount fare booking limits than equivalent monopolies.