Decomposing airline alliances: A bid-price approach to revenue management with incomplete information sharing

Although alliances seek to coordinate airlines’ decisions in order to increase total revenues, practical limitations mean that the partners are often unwilling or unable to share, or even incorporate, complete information about their partners’ operations. In this article, we present a method for managing revenues effectively when facing such limitations. We show that the alliance decomposes to single airlines when utilizing bid‐price sharing under limited information, and then use the (approximately) martingale property of optimal bid prices to create an easily implementable heuristic. We discuss the practical benefits of this method and compare its performance with a centralized controller in sample alliances. We also prove asymptotic optimality of one particular implementation.