An applied process for airline strategic fare optimization
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Sabre has developed a new decision support prototype for proactive pricing and price leadership to help airlines achieve their overall marketing objectives. The strategic pricing business process described in this article is recognized as important and introduces a new paradigm for establishing fare levels for airline pricing departments. Our proposed approach is analogous to revenue opportunity modeling but applied to airline pricing. It involves perfect hindsight review of price and sales information from prior seasons and applying methods such as price elasticity, game theory and optimization models to estimate the price-level changes needed to further improve revenue, share or yields. By knowing the direction and magnitude of recommended changes in previous seasons, these hindsight review tools help pricing managers make better price-setting decisions for future seasons.
Keywordsairlines competition leadership optimization pricing strategy
The authors wish to thank numerous individuals for their collaboration in our research efforts over the years and helpful assistance in preparing these materials including the following: Gene Bartholf, Christie Cratty, Ross Darrow, Guillermo Gallego, Thibaut Gardien, Jeff Glenn, Joakim Kalvenes, Yingying Kang, Mohammed Liaee, Brent Overbeek, Alexandre Poisson, John Reavy, Norbert Remenyi, Roman Shevchuk, Michael Sultan and Dieter Westermann. Special thanks to Doak Jones for his excellent work in building the prototype.
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