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Contract optimization with front-end fare discounts for airline corporate deals

Author

Listed:
  • Pachon, Julian
  • Erkoc, Murat
  • Iakovou, Eleftherios

Abstract

This paper develops a non-linear programming model to design optimal corporate contracts for airlines stipulating front-end discounts for all nets, which are defined by combination of routes, cabin types, and fare classes. The airline's profit is modeled using a multinomial logit function that captures the client's choice behavior in a competitive market. Alternative formulations are employed to investigate the impact of price elasticity, demand, and competition on optimal discounting policies. A case study involving a major carrier is presented to demonstrate the model. The results indicate that airlines can increase revenues significantly by optimizing corporate contracts using the suggested model.

Suggested Citation

  • Pachon, Julian & Erkoc, Murat & Iakovou, Eleftherios, 2007. "Contract optimization with front-end fare discounts for airline corporate deals," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 43(4), pages 425-441, July.
    • Handle: RePEc:eee:transe:v:43:y:2007:i:4:p:425-441
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    Citations

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    Cited by:

    1. Magdalina, Ana & Bouzaima, Martin, 2021. "An empirical investigation of European airline business models: Classification and hybridisation," Journal of Air Transport Management, Elsevier, vol. 93(C).
    2. Aldric Vives & Marta Jacob & Eugeni Aguiló, 2019. "Online hotel demand model and own-price elasticities: An empirical application in a mature resort destination," Tourism Economics, , vol. 25(5), pages 670-694, August.
    3. Ruina Yang & Chung-Yee Lee & Qian Liu & Song Zheng, 2019. "A carrier–shipper contract under asymmetric information in the ocean transport industry," Annals of Operations Research, Springer, vol. 273(1), pages 377-408, February.
    4. Aldric Vives & Marta Jacob & Marga Payeras, 2018. "Revenue management and price optimization techniques in the hotel sector," Tourism Economics, , vol. 24(6), pages 720-752, September.

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