Airline revenue management with segmented continuous pricing: methods and competitive effects
With the introduction of IATA’s New Distribution Capability (NDC), airlines will no longer be limited to discrete fare classes for their fare product distribution but could show fare quotes from continuous ranges to booking requests. NDC will also allow airlines to present different fare quotes to p...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
Palgrave Macmillan UK
2023
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| Online Access: | https://hdl.handle.net/1721.1/153170 |
| _version_ | 1811093928786526208 |
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| author | Long, Yanbin Belobaba, Peter |
| author2 | Massachusetts Institute of Technology. Department of Aeronautics and Astronautics |
| author_facet | Massachusetts Institute of Technology. Department of Aeronautics and Astronautics Long, Yanbin Belobaba, Peter |
| author_sort | Long, Yanbin |
| collection | MIT |
| description | With the introduction of IATA’s New Distribution Capability (NDC), airlines will no longer be limited to discrete fare classes for their fare product distribution but could show fare quotes from continuous ranges to booking requests. NDC will also allow airlines to present different fare quotes to passengers from different demand segments as identified by the airline. In theory, airlines can better extract passenger willingness to pay, and thus, see gains in revenue, by offering segmented continuous fare quotes to different passengers requesting to book. This paper describes the revenue management (RM) methods for Segmented Continuous Pricing and examines their potential effects on airlines’ revenue through simulations in the Passenger Origin–Destination Simulator (PODS). We describe a class-based algorithm for continuous pricing, a straightforward extension from the traditional methods used with existing RM systems. Our simulation results show that in a calibrated scenario in which only one airline adopts Segmented Continuous Pricing and has an 80% accuracy in identifying business versus leisure passenger booking requests, the first-mover airline can see as much as a 17% revenue gain, at the expense of competitors. The revenue gains come primarily from the leisure passenger segment by offering lower fares than competitors closer to departure. The first-mover airline loses bookings but does not see losses in revenue from the business passenger segment. We also explore potential response strategies by the competing airlines. We discover that competitors can reverse the first-mover’s revenue gain by removing their fare restrictions while still using traditional RM methods. We conclude that although adopting Segmented Continuous Pricing is promising in theory, its gains in practice will depend heavily on the competitive situation and the responses made by competing airlines. |
| first_indexed | 2024-09-23T15:52:56Z |
| format | Article |
| id | mit-1721.1/153170 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T15:52:56Z |
| publishDate | 2023 |
| publisher | Palgrave Macmillan UK |
| record_format | dspace |
| spelling | mit-1721.1/1531702024-01-11T21:16:21Z Airline revenue management with segmented continuous pricing: methods and competitive effects Long, Yanbin Belobaba, Peter Massachusetts Institute of Technology. Department of Aeronautics and Astronautics With the introduction of IATA’s New Distribution Capability (NDC), airlines will no longer be limited to discrete fare classes for their fare product distribution but could show fare quotes from continuous ranges to booking requests. NDC will also allow airlines to present different fare quotes to passengers from different demand segments as identified by the airline. In theory, airlines can better extract passenger willingness to pay, and thus, see gains in revenue, by offering segmented continuous fare quotes to different passengers requesting to book. This paper describes the revenue management (RM) methods for Segmented Continuous Pricing and examines their potential effects on airlines’ revenue through simulations in the Passenger Origin–Destination Simulator (PODS). We describe a class-based algorithm for continuous pricing, a straightforward extension from the traditional methods used with existing RM systems. Our simulation results show that in a calibrated scenario in which only one airline adopts Segmented Continuous Pricing and has an 80% accuracy in identifying business versus leisure passenger booking requests, the first-mover airline can see as much as a 17% revenue gain, at the expense of competitors. The revenue gains come primarily from the leisure passenger segment by offering lower fares than competitors closer to departure. The first-mover airline loses bookings but does not see losses in revenue from the business passenger segment. We also explore potential response strategies by the competing airlines. We discover that competitors can reverse the first-mover’s revenue gain by removing their fare restrictions while still using traditional RM methods. We conclude that although adopting Segmented Continuous Pricing is promising in theory, its gains in practice will depend heavily on the competitive situation and the responses made by competing airlines. 2023-12-14T20:37:17Z 2023-12-14T20:37:17Z 2023-12-03 2023-12-10T04:07:49Z Article http://purl.org/eprint/type/JournalArticle https://hdl.handle.net/1721.1/153170 Long, Yanbin and Belobaba, Peter. 2023. "Airline revenue management with segmented continuous pricing: methods and competitive effects." en https://doi.org/10.1057/s41272-023-00462-6 Creative Commons Attribution https://creativecommons.org/licenses/by/4.0/ The Author(s) application/pdf Palgrave Macmillan UK |
| spellingShingle | Long, Yanbin Belobaba, Peter Airline revenue management with segmented continuous pricing: methods and competitive effects |
| title | Airline revenue management with segmented continuous pricing: methods and competitive effects |
| title_full | Airline revenue management with segmented continuous pricing: methods and competitive effects |
| title_fullStr | Airline revenue management with segmented continuous pricing: methods and competitive effects |
| title_full_unstemmed | Airline revenue management with segmented continuous pricing: methods and competitive effects |
| title_short | Airline revenue management with segmented continuous pricing: methods and competitive effects |
| title_sort | airline revenue management with segmented continuous pricing methods and competitive effects |
| url | https://hdl.handle.net/1721.1/153170 |
| work_keys_str_mv | AT longyanbin airlinerevenuemanagementwithsegmentedcontinuouspricingmethodsandcompetitiveeffects AT belobabapeter airlinerevenuemanagementwithsegmentedcontinuouspricingmethodsandcompetitiveeffects |