Estimating sales and profitability impacts of airline branded-fares product design and pricing decisions using customer choice models
Abstract
This article provides a simple-to-use decision support framework for evaluating the sales and profitability impacts of airline branded-fare product designs and pricing using customer choice models. Our framework is derived from standard marketing analysis techniques developed for the design of bundled products and adapted to the airline branded-fares problem. We also provide willingness-to-pay estimates from internal Sabre surveys along with a heuristic price optimization using genetic algorithms applied to an example airline branded-fares problem. Although focused on the technical aspects of the solution, this article is written in business terms and is oriented towards use by practitioners.
Keywords
bundling branded fares optimizationNotes
Acknowledgements
The authors would like to extend thanks to Ross Darrow at Sabre for his generous time and effort in setting up and running our web survey samples. Prof. Bill Dillon at SMU assisted us in designing better survey questions and suggested including a reference ‘no frills’ airfare throughout the survey as a framing mechanism. Alan Walker at Sabre helped us design the genetic algorithm optimization model. Also, we are grateful to Sergio Mendoza at LAN Chile for his helpful suggestions and sharing his team’s experiences in designing branded fares at LAN. Roman Lopatko and Gina Morello at Sabre also provided valuable guidance and ongoing suggestions in applying our work.
We would also like to offer special thanks to Prof. Larry Weatherford and an anonymous referee for their thoughtful comments and editing assistance in developing this article.
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