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Airline fare and seat management strategies with demand dependency

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  • Obeng, K.
  • Sakano, R.

Abstract

This paper conceptualizes various discount strategies used by airlines. Using a constrained revenue maximization model that assumes interdependent demand, it develops rules to guide decision-making, and shows that the large fare discount-many discount seats and small fare discount-few discount seats strategies are optimal. Empirical support is provided for the large fare discount-many discount seats, the no fare discount-moderate discount seats and small fare premium-few discount seats strategies. In addition it identifies the large fare premium-very few discount seats strategies. We argue that these strategies are used in various demand situations and allow airlines to price discriminate.

Suggested Citation

  • Obeng, K. & Sakano, R., 2012. "Airline fare and seat management strategies with demand dependency," Journal of Air Transport Management, Elsevier, vol. 24(C), pages 42-48.
    • Handle: RePEc:eee:jaitra:v:24:y:2012:i:c:p:42-48
    DOI: 10.1016/j.jairtraman.2012.06.001
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    References listed on IDEAS

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    4. T C Botimer & P P Belobaba, 1999. "Airline pricing and fare product differentiation: A new theoretical framework," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 50(11), pages 1085-1097, November.
    5. AfDB AfDB, . "AfDB Group Annual Report 2009," Annual Report, African Development Bank, number 66 edited by Koua Louis Kouakou.
    6. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-683, August.
    7. Pels, Eric & Rietveld, Piet, 2004. "Airline pricing behaviour in the London–Paris market," Journal of Air Transport Management, Elsevier, vol. 10(4), pages 277-281.
    8. AfDB AfDB, . "AfDB Group Annual Report 2009 (Arabic)," Annual Report, African Development Bank, number 68 edited by Koua Louis Kouakou.
    9. Kathy J. Hayes & Leola B. Ross, 1998. "Is Airline Price Dispersion the Result of Careful Planning or Competitive Forces?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(5), pages 523-541, October.
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    Cited by:

    1. Liang, Jinpeng & Li, Liming & Zheng, Jianfeng & Tan, Zhijia, 2023. "Service-oriented container slot allocation policy under stochastic demand," Transportation Research Part B: Methodological, Elsevier, vol. 176(C).

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