Co-opetition alliance models of parallel flights for determining optimal overbooking policies

Abstract

In recent times, some airlines have entered into a partial alliance with their rival airlines in the common market. In this paper, we explore how much this so-called co-opetition alliance benefits participating airlines by improving their overbooking policies. We aimed to determine the optimal overbooking policies when two competing airlines operate in such an alliance and explore whether and how their partial cooperation through such an alliance agreement with each other on two parallel flights enhances revenue and service quality as well as reduces fuel cost. We show rigorously that this type of partial cooperation increases expected profits and service levels. An empirical study was conducted on actual cases in the China air travel market for routes between Hong Kong and Beijing to illustrate the win–win effect of this type of alliance application.