Model for Determining Airline Fares for Meeting or Convention Demand

Abstract

This paper proposes an approach to determine zonal fares for the attendees of the meetings or conventions flying from different cities to a single host city. The airline has to offer a fare low enough to win the contract and at the same time cover the costs and profit margins. A methodology is presented for consolidating the demand into different zones and selecting a representative city for each zone. A bilevel linear programming formulation is used to solve the problem. This model minimizes the cost of displacing high revenue individual passengers by utilizing the unused seats over different acceptable itineraries resulting in lower fares and higher load factors. The proposed algorithm is tested by generating fares for a real-world data set on convention demand obtained from an airline. The implementation results show an improvement of up to 50% over the fares calculated using the current techniques. Currently, most airlines compute fares by booking the total demand on a single itinerary that can result in higher fares thereby causing the loss of the contract.