Seat assignment problem with the payable up-grade as an ancillary service of airlines

Moongil Yoon () and Habin Lee ()
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Moongil Yoon: Korea Aerospace University
Habin Lee: Brunel University London

Annals of Operations Research, 2021, vol. 307, issue 1, No 21, 483-497

Abstract: Abstract The de-bundling and re-bundling of service products offered by low cost carriers from service innovation have become 'à-la-carte' services and chargeable ancillary services to generate additional revenues in the airline industry. In this paper, we focus on the payable upgrade option in airlines to increase revenue when customers' demands are uncertain. This study is as an extension of planned upgrade, which guarantees the use of low-quality services at a low price, but requires customers to pay to use upgraded benefits. In this paper, we focus on the seat assignment problem with the payable upgrade option to maximize revenue. Also, we set the condition under which payable upgrade options can generate more revenue. Furthermore, applying Belobaba's EMSR approach, we suggest an effective seat assignment method for multiple fare classes with a payable upgrade option to increase the total revenue. With a simple numerical example, we find that introducing a payable upgrade option can increase the revenue. Our method for allocating seats for multiple fare classes with a payable upgrade option can contribute effectively to revenue increases in airlines' branded fare products, as well as in other service industries.

Keywords: Option products; Payable upgrade; Seat assignment; Revenue management; Ancillary revenue (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10479-021-04329-0

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