Contract optimization with front-end fare discounts for airline corporate deals Academic Article uri icon

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. © 2006 Elsevier Ltd. All rights reserved.

author list (cited authors)

  • Pachon, J., Erkoc, M., & Iakovou, E.

citation count

  • 11

publication date

  • July 2007