Abstract
We propose a variable pricing model (VPM) for airline pricing and revenue management. Combining existing elasticity based fare–demand functions and deterministic linear programs (DLP), VPM formulates the interaction between change in fare and demand of related products, introduces fare as a decision variable in the optimization problem, and simultaneously computes the optimal pair of allocation and fare for each product. We solve nonlinear programs of VPM using the Frank–Wolfe algorithm and its variant. The proposed method has been implemented in the existing module of Sabre and tested using synthetized data from a medium-sized airline. Numerical results show that our model is scalable, and the outcome of VPM significantly increases revenue, traffic, and load factors compared to existing methods.
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