Abstract:

In airline revenue management, after differentiating products on each itinerary according to various restrictions, management needs to set the prices for the products. A deterministic joint pricing and seat allocation model is proposed. It is reduced to a separable concave programming problem and thus readily solvable. Focusing on a special hub-to-hub airline network, monotonicity of the pricing decisions is explored. Using a nonlinear primal–dual technique, it is shown that some itineraries’ optimal prices are decreasing, while some other itineraries’ optimal prices are increasing with a capacity change in either a side leg or the middle leg. Such structural properties add important managerial insights into the pricing model for revenue managers in an airline company.

Key words: Optimal pricing ·, Airline network ·, Structural properties ·, Primal-dual