Enhancing revenue by offering a flexible product option

We examine a revenue‐enhancing opportunity for perishable products that face demand uncertainty with fixed capacity and limited product options, and where customers have distinct preferences in product selection. We use an airline as an example of such products in this paper. An airline provides several product options for customers, as it operates multiple flights between the same origin‐destination at different times of the same day. We consider customers with a strong preference for a specific flight and introduce a segment of customers who are flexible with their travel plans and have no specific flight preference on that day. We find that under some circumstances, the airline offering the flexible ticket to attract price‐sensitive, flexible customers will enhance revenues. We investigate the optimal number of seats to reserve from the flights for the various fare classes and the fare for the flexible ticket. The implications of this research for the product with market disruption are also discussed.