Optimization of Flight Contingent Procurement Considering Quantity Discounts and Contract Negotiations

Abstract

Current results of revenue management and pricing policy research enable suppliers to identify and realize optimal sales strategies and decisions. In response, a corporation which has to deal with results of pricing policies is compelled to optimize its purchase. New developments in the aviation sector and airline industry along with a highly competitive flight ticket market and the importance of strategic procurement reveal the necessity of creating new decision support solutions based on quantitative models. The developed decision support system assists the decision making process of a corporation in annual contract negotiations with airlines to minimize its flight travel costs. Considering provided quantity and volume discounts with varying tiers and targets both operational and strategic decision support is provided. It combines the developed decision process with the use of a mathematical model. The proposed decision support system leads to optimal airline selection and flight contingent allocation considering traditional airlines and low-cost carriers as suppliers. It is addressed to a multinational corporation with numerous global host countries, branch offices, trading partners and customers with world-wide flight demand.