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Optimal prices for multiple products in classless revenue management

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  • Bertalan Juhasz

    (Finnair Oyj)

Abstract

With IATA's New Distribution Capability (NDC), booking classes and fares filed into Global Distribution Systems will no longer be necessary, and the task of airline revenue management (RM) will shift from optimizing the availability of fares to generate optimal offered prices for each seat product (restricted, semi-flexible, flexible, …) which the airline sells. We will show how the marginal revenue transformation theory can be extended into the classless RM environment and introduce a network optimization algorithm based on this. The optimizer takes the forecasted price–demand curve of each origin–destination (OD) product as input and uses dynamic programming to calculate a bid price vector on each leg, which is in turn used to calculate the offered prices for each OD product. We will also discuss how the new method could be used in practice by an airline RM department to provide predictable and self-consistent prices.

Suggested Citation

  • Bertalan Juhasz, 2021. "Optimal prices for multiple products in classless revenue management," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 20(5), pages 588-595, October.
    • Handle: RePEc:pal:jorapm:v:20:y:2021:i:5:d:10.1057_s41272-021-00282-6
    DOI: 10.1057/s41272-021-00282-6
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    References listed on IDEAS

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    1. Kalyan Talluri & Garrett van Ryzin, 2004. "Revenue Management Under a General Discrete Choice Model of Consumer Behavior," Management Science, INFORMS, vol. 50(1), pages 15-33, January.
    2. Kalyan Talluri & Garrett van Ryzin, 1998. "An Analysis of Bid-Price Controls for Network Revenue Management," Management Science, INFORMS, vol. 44(11-Part-1), pages 1577-1593, November.
    3. Michael D. Wittman & Peter P. Belobaba, 2018. "Customized dynamic pricing of airline fare products," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 17(2), pages 78-90, April.
    4. Conrad J. Lautenbacher & Shaler Stidham, 1999. "The Underlying Markov Decision Process in the Single-Leg Airline Yield-Management Problem," Transportation Science, INFORMS, vol. 33(2), pages 136-146, May.
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    Cited by:

    1. Resul Aydemir & Mehmet Melih Değirmenci & Abdullah Bilgin, 2023. "Estimation of passenger sell-up rates in airline revenue management by considering the effect of fare class availability," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(6), pages 501-513, December.
    2. Ku, Edward C.S., 2022. "Developing business process agility: Evidence from inter-organizational information systems of airlines and travel agencies," Journal of Air Transport Management, Elsevier, vol. 103(C).

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