Dynamic availability of fare products with knowledge of customer characteristics

Michael D Wittman and Peter P Belobaba
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Michael D Wittman: Massachusetts Institute of Technology, International Center for Air Transportation
Peter P Belobaba: Massachusetts Institute of Technology, International Center for Air Transportation

Journal of Revenue and Pricing Management, 2017, vol. 16, issue 2, No 8, 217 pages

Abstract: Abstract Recent advancements in airline distribution technology, including IATA’s New Distribution Capability (NDC), could offer airlines a wealth of information about the characteristics of individual customers arriving to book. Recent literature has envisioned a world where airlines, enabled by this new distribution technology, are able to make personalized fare quotes in real time, effectively heralding the end of traditional booking classes. However, academic literature suggests that this type of price discrimination may intensify competition and lead to lower revenues for firms. In this article – the first in a series of papers exploring models of dynamic product availability with knowledge of customer characteristics – we test a simple dynamic availability (DynA) heuristic that adjusts fare class availability after inheriting information about a customer’s trip purpose. Through results from the Passenger Origin-Destination Simulator, we find that this DynA heuristic is often revenue-negative for airlines and unstable in competitive environments. The results raise questions about airline benefits from simple approaches to personalized pricing enabled by NDC, and open up opportunities for future research regarding more nuanced and advanced strategies for customized pricing and availability in the airline industry.

Keywords: new distribution capability; dynamic availability; airline distribution; personalized pricing; behavior-based price discrimination (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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DOI: 10.1057/rpm.2016.26

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