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.
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- Klein, Robert, 2005. "Revenue Management : Grundlagen und Methoden der Kapazitätssteuerung," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 25150, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
- Jan K. Brueckner, 2003. "International Airfares in the Age of Alliances: The Effects of Codesharing and Antitrust Immunity," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 105-118, February.
- de Boer, Sanne V. & Freling, Richard & Piersma, Nanda, 2002. "Mathematical programming for network revenue management revisited," European Journal of Operational Research, Elsevier, vol. 137(1), pages 72-92, February.
- Brueckner, Jan K & Whalen, W Tom, 2000. "The Price Effects of International Airline Alliances," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 503-545, October.
- Oum, Tae Hoon & Park, Jong-Hun, 1997. "Airline alliances: current status, policy issues, and future directions," Journal of Air Transport Management, Elsevier, vol. 3(3), pages 133-144.
- Kimms, A. & Klein, Robert, 2005. "Revenue Management im Branchenvergleich," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 26627, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
- Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
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