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JETFLY787 · Member Joined: 15 Aug 2007 Posts: 343 Location: LON,UK

Hey Guys

I have a project on inventory management where the inventory is airline seats. I am a student in Operational Research and Managment Sciences where we look at optimisation of resources while maximising revenue. As a result I have this project where I have to Develop this mathematical model for airline seat pricing.This could be on Java or any other software. Basically I need to develop a pricing model for pricing airline seats and into different price buckets. Can any one help me understand the airline pricing complexities and wat factors are accounted for like city pairs, distance, competition, bilaterals etc etc. If Some one can make me understand the basics of the pricing scheme I reckon I can carry on with that. I am in the UK so if any one would want me to meet them who is also in UK ill be more than happy to meet.

Thanks

JETFLY787 ~Gaurav
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Nimish · Posted: Sun Jun 14, 2009 5:03 pm Post subject:

This is a fairly complex topic, but I assume there are standard text books/ cases which describe the theory involved?

Ultimately it's about maximizing revenue on every single flight. Price the seats too high, and the loads will plummet. Price the seats too low and you'll have a full flight with terrible yields. Hence the concept of pricing buckets where the airline publishes about 10 different fares for the exact same product, but the fares are available based on the demand/supply situation. The lower fares are typically available when the loads on the flight are low (say 6-12 months in advance), and the lower fares are typically those with maximum restrictions (like change fees or non-refundable etc.).

As the flight starts to fill up, the airline will offer more of the higher priced inventory under the assumption that the passenger has no other cheaper (and as convenient) option. However at the last minute (say 2-3 days before departure), they may again launch their lowest fares to provide a stimulus to fill up those last few seats which are yet to be sold.

Onto all of this, the airline needs to factor in historical data - like the loads in the previous years on this route during this week of the year, this day of the week etc. Hence if it's the start of the schools summer vacations, loads are going to be high even if the prices are slightly high, so the lowest priced inventory may not be released at all.
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JETFLY787 · Member Joined: 15 Aug 2007 Posts: 343 Location: LON,UK

Thanks Nimish I reckon I have understood a bit but what you have told is very helpful.I think I need to take variables for each of the categories involved and tweek them based on other greater variables of onset of vacations for example.

Any further inputs (if any) is always awaited

Thanks again

~Gaurav
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TKMCE · Member Joined: 27 Feb 2007 Posts: 957

Do a google "scholar" search. You get a lot of info.

Also get hold of Rigas Doganis "Flying OFF COURSE -The economics of international airlines". THe pricniples of pricing are covered (in a non ORish way) beautifully. Your Univ library will have it else it is easy to enough to buy in UK.