Modeling joint choice of airline itinerary and fare product - Implications for airline pricing strategies

The rapid expansion of low-cost airlines and the development of online distribution of airline tickets have put pressure on the pricing and revenue management strategy of network airlines and have substantially modified the airline passenger choice environment, especially in short-haul markets. To analyze the choice behavior of airline passengers, a I unique data set is being developed. Passenger booking data are combined with fare class availability data collected daily for a 90-day booking period, and fare rules are applied to reconstruct the passenger choice set and determine which fare products were available at the time of the booking on nonstop itineraries in select business-oriented European short-haul markets. Estimation results from a multinomial logit model of the joint choice of airline itinerary and fare product show that outbound passengers tend to prefer early morning and late afternoon flight departures that allow them to conduct their business activities either before or after their trips. In addition, a significant proportion of passengers traveling during the week tends to prefer higher-priced fully flexible fare products to cheaper nonflexible options; this preference shows the revenue potential of a multiproduct pricing strategy in markets affected by the presence of low-cost competition. This study illustrates how such models may be used to support airline decision making in scheduling, pricing, and revenue management.