Contract optimization with front-end fare discounts for airline corporate deals

Julian Pachon, Murat Erkoc, Eleftherios Iakovou

Research output: Contribution to journalArticle

9 Scopus citations

Abstract

This paper develops a non-linear programming model to design optimal corporate contracts for airlines stipulating front-end discounts for all nets, which are defined by combination of routes, cabin types, and fare classes. The airline's profit is modeled using a multinomial logit function that captures the client's choice behavior in a competitive market. Alternative formulations are employed to investigate the impact of price elasticity, demand, and competition on optimal discounting policies. A case study involving a major carrier is presented to demonstrate the model. The results indicate that airlines can increase revenues significantly by optimizing corporate contracts using the suggested model.

Original languageEnglish (US)
Pages (from-to)425-441
Number of pages17
JournalTransportation Research Part E: Logistics and Transportation Review
Volume43
Issue number4
DOIs
StatePublished - Jul 2007

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Keywords

  • Airline corporate contracts
  • Business travel
  • Lagrangian relaxation
  • Multinomial logit function
  • Non-linear programming
  • Revenue management

ASJC Scopus subject areas

  • Business and International Management
  • Management Science and Operations Research
  • Transportation

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