IDEAS home Printed from https://ideas.repec.org/a/eee/jaitra/v94y2021ics0969699721000417.html
   My bibliography  Save this article

Dynamic pricing of ancillary services based on passenger choice behavior

Author

Listed:
  • Zhao, Guihong
  • Cui, Yue
  • Cheng, Shaoyu

Abstract

Based on passenger choice behavior, a dynamic pricing mechanism of ancillary services has been brought up for analysis in this paper. With the analysis of the passenger choice behavior of ancillary services, this study (1) analyzed the pricing of ancillary services from airlines' websites, (2) launched a survey to investigate passengers’ characteristics and preferences, (3) applied the binary logistic model to analyze passenger choice of ancillary services, and integrated into the dynamic pricing model of ancillary services. The optimal prices can be obtained at the maximum of the revenue. Based on the historical data of a Chinese domestic flight, the optimal prices of ancillary services for different types of passengers can be obtained at the maximum revenue of ancillary services, with a 74.4% increase of revenue. This paper not only created a general pricing model for improving the ancillary revenue but also provided theoretical support for ancillary pricing. The model with enough data can be dynamically applied to various flights and ancillary services.

Suggested Citation

  • Zhao, Guihong & Cui, Yue & Cheng, Shaoyu, 2021. "Dynamic pricing of ancillary services based on passenger choice behavior," Journal of Air Transport Management, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:jaitra:v:94:y:2021:i:c:s0969699721000417
    DOI: 10.1016/j.jairtraman.2021.102058
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969699721000417
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jairtraman.2021.102058?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. de Wit, Jaap G. & Zuidberg, Joost, 2012. "The growth limits of the low cost carrier model," Journal of Air Transport Management, Elsevier, vol. 21(C), pages 17-23.
    2. Kuo, Chung-Wei & Jou, Rong-Chang, 2017. "Willingness to pay for airlines’ premium economy class: The perspective of passengers," Journal of Air Transport Management, Elsevier, vol. 59(C), pages 134-142.
    3. O'Connell, John F. & Warnock-Smith, David, 2013. "An investigation into traveler preferences and acceptance levels of airline ancillary revenues," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 12-21.
    4. Wu, Cheng-Lung & So, T.H. Hanson, 2018. "On the flight choice behaviour of business-purpose passengers in the Australian domestic air market," Journal of Air Transport Management, Elsevier, vol. 72(C), pages 56-67.
    5. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74(2), pages 132-132.
    6. Chang, Li-Yen & Sun, Pei-Yu, 2012. "Stated-choice analysis of willingness to pay for low cost carrier services," Journal of Air Transport Management, Elsevier, vol. 20(C), pages 15-17.
    7. Paul Chiambaretto, 2021. "Air passengers’ willingness to pay for ancillary services on long-haul flights," Post-Print hal-03514785, HAL.
    8. Song, Woon-Kyung & Lee, Hyun Cheol, 2020. "An analysis of traveler need for and willingness to purchase airline dynamic packaging: A Korean case study," Journal of Air Transport Management, Elsevier, vol. 82(C).
    9. Juan Carlos Martín & Concepción Román & Raquel Espino, 2007. "Willingness to Pay for Airline Service Quality," Transport Reviews, Taylor & Francis Journals, vol. 28(2), pages 199-217, July.
    10. Scotti, Davide & Dresner, Martin, 2015. "The impact of baggage fees on passenger demand on US air routes," Transport Policy, Elsevier, vol. 43(C), pages 4-10.
    11. Warnock-Smith, David & O'Connell, John F. & Maleki, Mahnaz, 2017. "An analysis of ongoing trends in airline ancillary revenues," Journal of Air Transport Management, Elsevier, vol. 64(PA), pages 42-54.
    12. Michael D. Wittman & Peter P. Belobaba, 2017. "Personalization in airline revenue management – Heuristics for real-time adjustment of availability and fares," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 16(4), pages 376-396, August.
    13. Chiambaretto, Paul, 2021. "Air passengers’ willingness to pay for ancillary services on long-haul flights," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 147(C).
    14. Michael D. Wittman & Peter P. Belobaba, 2019. "Dynamic pricing mechanisms for the airline industry: a definitional framework," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 18(2), pages 100-106, April.
    15. Peter P. Belobaba, 1989. "OR Practice—Application of a Probabilistic Decision Model to Airline Seat Inventory Control," Operations Research, INFORMS, vol. 37(2), pages 183-197, April.
    16. Belobaba, Peter P. & Wilson, John L., 1997. "Impacts of yield management in competitive airline markets," Journal of Air Transport Management, Elsevier, vol. 3(1), pages 3-9.
    17. Ødegaard, Fredrik & Wilson, John G., 2016. "Dynamic pricing of primary products and ancillary services," European Journal of Operational Research, Elsevier, vol. 251(2), pages 586-599.
    18. Adam Bockelie & Peter Belobaba, 2017. "Incorporating ancillary services in airline passenger choice models," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 16(6), pages 553-568, December.
    19. Shaw, Mark & Tiernan, Siobhan & O'Connell, John F. & Warnock-Smith, David & Efthymiou, Marina, 2021. "Third party ancillary revenues in the airline sector: An exploratory study," Journal of Air Transport Management, Elsevier, vol. 90(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fukushi, Mitsuyoshi & Delgado, Felipe & Raveau, Sebastián & Santos, Bruno F., 2022. "CHAIRS: A choice-based air transport simulator applied to airline competition and revenue management," Transportation Research Part A: Policy and Practice, Elsevier, vol. 155(C), pages 297-315.
    2. Ren, Xinhui & Pan, Na & Jiang, Hong, 2022. "Differentiated pricing for airline ancillary services considering passenger choice behavior heterogeneity and willingness to pay," Transport Policy, Elsevier, vol. 126(C), pages 292-305.
    3. Stacey Mumbower & Susan Hotle & Laurie A. Garrow, 2023. "Highly debated but still unbundled: The evolution of U.S. airline ancillary products and pricing strategies," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(4), pages 276-293, August.
    4. Jeon, Mi-Sun & Lee, Jang-Ho, 2020. "Estimation of willingness-to-pay for premium economy class by type of service," Journal of Air Transport Management, Elsevier, vol. 84(C).
    5. Chiambaretto, Paul, 2021. "Air passengers’ willingness to pay for ancillary services on long-haul flights," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 147(C).
    6. Özlem Atalık & Mahmut Bakır & Şahap Akan, 2019. "The Role of In-Flight Service Quality on Value for Money in Business Class: A Logit Model on the Airline Industry," Administrative Sciences, MDPI, vol. 9(1), pages 1-15, March.
    7. Onur Bas & Tamer Aksoy, 2022. "Examining the impact of cargo and ancillary revenues on net profit for full service carrier airlines," International Journal of Business Ecosystem & Strategy (2687-2293), Bussecon International Academy, vol. 4(3), pages 48-72, July.
    8. Daniel Schubert & Christa Sys & Rosário Macário, 2022. "Customized airline offer management: a conceptual architecture," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(5), pages 553-563, October.
    9. Chiambaretto, Paul & Combe, Emmanuel, 2023. "Business model hybridization but heterogeneous economic performance: Insights from low-cost and legacy carriers in Europe," Transport Policy, Elsevier, vol. 136(C), pages 83-97.
    10. Song, Woon-Kyung & Lee, Hyun Cheol, 2020. "An analysis of traveler need for and willingness to purchase airline dynamic packaging: A Korean case study," Journal of Air Transport Management, Elsevier, vol. 82(C).
    11. O'Connell, John F. & Avellana, Raquel Martinez & Warnock-Smith, David & Efthymiou, Marina, 2020. "Evaluating drivers of profitability for airlines in Latin America: A case study of Copa Airlines," Journal of Air Transport Management, Elsevier, vol. 84(C).
    12. Shaw, Mark & Tiernan, Siobhan & O'Connell, John F. & Warnock-Smith, David & Efthymiou, Marina, 2021. "Third party ancillary revenues in the airline sector: An exploratory study," Journal of Air Transport Management, Elsevier, vol. 90(C).
    13. Kevin K. Wang & Michael D. Wittman & Adam Bockelie, 2021. "Dynamic offer generation in airline revenue management," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 20(6), pages 654-668, December.
    14. Rouncivell, Adam & Timmis, Andrew J. & Ison, Stephen G., 2018. "Willingness to pay for preferred seat selection on UK domestic flights," Journal of Air Transport Management, Elsevier, vol. 70(C), pages 57-61.
    15. Ko, Young Dae, 2019. "The airfare pricing and seat allocation problem in full-service carriers and subsidiary low-cost carriers," Journal of Air Transport Management, Elsevier, vol. 75(C), pages 92-102.
    16. Sun, Xiaoqian & Wandelt, Sebastian & Zhang, Anming, 2022. "STARTUPS: Founding airlines during COVID-19 - A hopeless endeavor or an ample opportunity for a better aviation system?," Transport Policy, Elsevier, vol. 118(C), pages 10-19.
    17. Munoz, Claudia & Laniado, Henry, 2021. "Airline choice model for international round-trip flights: The role of travelers’ satisfaction and personality traits," Research in Transportation Economics, Elsevier, vol. 90(C).
    18. Tuo Wang & Esther Gal-Or & Rabikar Chatterjee, 2009. "The Name-Your-Own-Price Channel in the Travel Industry: An Analytical Exploration," Management Science, INFORMS, vol. 55(6), pages 968-979, June.
    19. Jou, Rong-Chang & Kuo, Chung-Wei & Chiu, Yi-Chun, 2022. "Bidding behaviors for international airline seats in short/long distance flights," Transportation Research Part A: Policy and Practice, Elsevier, vol. 163(C), pages 55-79.
    20. Serguei Netessine & Robert A. Shumsky, 2005. "Revenue Management Games: Horizontal and Vertical Competition," Management Science, INFORMS, vol. 51(5), pages 813-831, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jaitra:v:94:y:2021:i:c:s0969699721000417. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/journal-of-air-transport-management/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.