Strategic Analyses of Applying an Option-Based Hedging Mechanism in Parallel Airline Alliances

The extant literature proposes an option-based hedging mechanism for airlines in a parallel alliance to transfer bumped passengers their partner's flight. This paper extends this by conducting strategic analyses and developing two-stage simulation-based algorithm identify the best strategy applying mechanism. Specifically, refers number of options allied carriers transact. authors show that there exists robust result options, it is obtained under objective maximizing alliance-wide revenue. can provide direct guidance management on practice ex-post overbooking risks matching supply with demand.