Contract optimization with front-end fare discounts for airline corporate deals

Julian Pachon, Murat Erkoc and Eleftherios Iakovou

Transportation Research Part E: Logistics and Transportation Review, 2007, vol. 43, issue 4, 425-441

Abstract: This paper develops a non-linear programming model to design optimal corporate contracts for airlines stipulating front-end discounts for all nets, which are defined by combination of routes, cabin types, and fare classes. The airline's profit is modeled using a multinomial logit function that captures the client's choice behavior in a competitive market. Alternative formulations are employed to investigate the impact of price elasticity, demand, and competition on optimal discounting policies. A case study involving a major carrier is presented to demonstrate the model. The results indicate that airlines can increase revenues significantly by optimizing corporate contracts using the suggested model.

Keywords: Airline; corporate; contracts; Revenue; management; Business; travel; Non-linear; programming; Lagrangian; relaxation; Multinomial; logit; function (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (5)

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