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Premium cabin capacity sharing strategies: airline RM insights

Author

Listed:
  • Germán Escovar-Álvarez

    (Massachusetts Institute of Technology, International Center for Air Transportation)

  • Peter P. Belobaba

    (Massachusetts Institute of Technology, International Center for Air Transportation)

Abstract

This paper explores revenue management strategies for premium cabin capacity sharing, that is, accepting additional bookings in economy fare classes when some premium cabin seats are expected to remain empty. Two heuristics are presented and tested to evaluate the impacts of premium cabin capacity sharing on airline revenues and loads. These RM strategies are tested using the Passenger Origin Destination Simulation (PODS), which replicates the interactions between airline revenue management systems and passenger choice of airline itineraries, fare types and service offerings. Based on the simulations, the methodologies proposed can generate total revenue gains of up to 1.1%. However, two caveats are identified: first, losses in the revenue captured from premium fare classes are likely to be experienced due to displacement by economy fare class passengers. Second, premium cabin capacity sharing should only be implemented in the final stages of the booking process; otherwise, the sharing heuristics can result in revenue losses for the airline.

Suggested Citation

  • Germán Escovar-Álvarez & Peter P. Belobaba, 2022. "Premium cabin capacity sharing strategies: airline RM insights," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(1), pages 3-16, February.
    • Handle: RePEc:pal:jorapm:v:21:y:2022:i:1:d:10.1057_s41272-021-00326-x
    DOI: 10.1057/s41272-021-00326-x
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    References listed on IDEAS

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    1. Alstrup, Jens & Boas, Soren & Madsen, Oli B. G. & Vidal, ReneVictor Valqui, 1986. "Booking policy for flights with two types of passengers," European Journal of Operational Research, Elsevier, vol. 27(3), pages 274-288, December.
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