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An option-based hedging mechanism for managing the risk of overbooking in parallel airline alliances

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  • Wang, Xiaojia
  • Fung, Richard Y.K.

Abstract

In the context of parallel alliances, this paper proposes and describes an option-based mechanism that allows an airline to transfer bumped passengers to its alliance partner’s flight. The objective of this mechanism is to reduce the overbooking risk borne by the allied airlines. An analytical model is built to calculate the net benefit that can be obtained by the airlines. The simulation results confirm that the proposed mechanism can generate monetary and non-monetary benefits for allied carriers under many practical conditions.

Suggested Citation

  • Wang, Xiaojia & Fung, Richard Y.K., 2014. "An option-based hedging mechanism for managing the risk of overbooking in parallel airline alliances," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 146-162.
    • Handle: RePEc:eee:transe:v:70:y:2014:i:c:p:146-162
    DOI: 10.1016/j.tre.2014.06.014
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    References listed on IDEAS

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    1. Yingjie Lan & Michael O. Ball & Itir Z. Karaesmen, 2011. "Regret in Overbooking and Fare-Class Allocation for Single Leg," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 194-208, December.
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    Cited by:

    1. Ma, Jie & Tse, Ying Kei & Wang, Xiaojun & Zhang, Minhao, 2019. "Examining customer perception and behaviour through social media research – An empirical study of the United Airlines overbooking crisis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 127(C), pages 192-205.
    2. Wang, Tingsong & Xing, Zheng & Hu, Hongtao & Qu, Xiaobo, 2019. "Overbooking and delivery-delay-allowed strategies for container slot allocation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 433-447.
    3. Alavi Fard, Farzad & Sy, Malick & Ivanov, Dmitry, 2019. "Optimal overbooking strategies in the airlines using dynamic programming approach in continuous time," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 384-399.

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