Dynamic offer generation in airline revenue management

The New Distribution Capability and new retailing platforms will enable airlines to respond shopping requests with bundled offers of flights ancillary services, representing an evolution from traditional, flight-focused optimization. Assembling attractive set display customers therefore represents a joint pricing assortment optimization problem in airline revenue management. In this paper, we introduce initial approach for the selection la carte flight offers. First, propose customer choice model that captures impact bundles on itinerary choice. We then calculate prices each offer continuous range price points maximizes expected given segment. illustrate using single-flight, single-ancillary base case discuss extensions more complex environments. Tests Passenger Origin–Destination Simulator (PODS) show dynamic generation (DOG) can increase net when used by one or competitive network, assuming are able accurately segment incoming estimate average willingness-to-pay find majority gains DOG due effects component offer. bundling mechanism is secondary source gain be realized take services into account choosing flight. Our results provide insight practitioners implementing systems processes. For example, line previous literature bundle pricing, transparent distribution channels service should valuation high its marginal cost provision low. close discussing strategic managerial implications move traditional strategies next-generation, offer-focused approach.