Joint Dynamic Pricing for Two Parallel Flights based on Passenger Choice Behavior

Airline revenue management of a single flight has been a subject of extensive study in the last few decades. Starting from the choice behavior of passengers between flights, this article studies the joint dynamic pricing for two parallel flights, which are owned by a same airline company and are scheduled at different times. In the model, potential passengers make ticket-purchasing choices based on the combination of departure times and selling prices. We classify the passengers into two categories: those who have strict requirements on departure times and those who are flexible toward departure times. By dynamically adjusting the ticket prices, the airline controls/inducts the demand to match the fixed seat inventories, so as to maximize the total expected revenue of the two flights. We characterize the structure of the optimal joint pricing decisions by analyzing on a discrete-time model. Our research shows that the searching space of the optimal pricing decisions can be shrunk to a minimum level; and therefore the computational effort can be significantly reduced.