¹University of Southampton, Southampton, UK

Correspondence: M F Anjos, Operational Research Group, Faculty of Mathematical Studies, University of Southampton, Southampton, SO17 1BJ, UK. E-mail: anjos@stanfordalumni.org

Received June 2003; Accepted December 2003.

Abstract

The paper describes a methodology that has been implemented in a major British airline to find the optimal price to charge for airline tickets under one-way pricing. An analytical model has been developed to describe the buying behaviour of customers for flights over the selling period. Using this model and a standard analytical method for constrained optimization, we can find an expression for the optimal price structure for a flight. The expected number of bookings made on each day of the selling period and in each fare class given these prices can then be easily calculated. A simulation model is used to find the confidence ranges on the numbers of bookings and these ranges can be used to regulate the sale of tickets. A procedure to update the price structure based on the remaining capacity has also been developed.