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In-Depth Information
Comparing Revenue Optimization Models
for Low Cost Carriers Supporting Connecting
Flights - A Case Study
Ulrich Derigs, Benjamin Juds, and Andreas Palm
Department of Information Systems and Operations Research (WINFORS)
University of Cologne, Pohligstr. 1, 50969 Cologne, Germany
ulrich.derigs@uni-koeln.de, juds@gmx.de, andi@andipalm.de
Abstract.
Traditionally low cost carriers (LCC) offer simple point-to-
point relations only and follow the pricing paradigm to only offer one
price at a time with prices increasing towards the end of the booking
period. Recently, LCC have started to also offer connecting flights. With
this change in the business model from point-to-point relations only, the
booking as well as the revenue management system has to be adapted
appropriately. In this paper we present a simple LP-model for revenue
management at LCC which is based on the realistic situation that for
every flight a set of possible prices is prespecified and which can consider
direct as well as connecting flights. In a simulation study we demonstrate
the eciency and the advantage of this model over models established
in practice where the optimal solution has to be adapted to the pricing
schema, i.e prices have to be rounded and capacities have to be split.
1 Introduction
During the last 20 years the appearance of low cost carriers (LCC) like Easy Jet,
Ryanair, Germanwings etc. has revolutionized air passenger transportation (see
[1]). The business model of an LCC is substantially different from the traditional
full-service carriers (FSC) like British Airways, KLM, Lufthansa etc. in many
ways but can be characterized by one aspect, i.e., to reduce complexity on all
levels. Thus the business model includes
-
offering simple point-to-point relations with a single passenger class and a
simple fare schema only with no-frills, i.e., passengers paying charges for ex-
tras like advanced seat reservation, snacks and drinks as well as prohibitively
high rebooking fees,
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operating a single type of aircraft and flying to cheaper and less congested
airports to cut charges and allowing fast turnaround times with the conse-
quence of a high aircraft utilization,
-
direct sales of tickets over proprietary call center/ booking systems avoiding
cost for travel agents and use of reservation systems.
For the customer the main difference compared to full-service carriers is ticket
price. With the need for high load factors and price being the only instrument for
