Comparing Revenue Optimization Models for Low Cost Carriers Supporting Connecting Flights - A Case Study

Traditionally low cost carriers (LCC) offer simple point-to-point relations only and follow the pricing paradigm to only offer one price at a time with prices increasing towards the end of the booking period. Recently, LCC have started to also offer connecting flights. With this change in the business model from point-to-point relations only, the booking as well as the revenue management system has to be adapted appropriately. In this paper we present a simple LP-model for revenue management at LCC which is based on the realistic situation that for every flight a set of possible prices is prespecified and which can consider direct as well as connecting flights. In a simulation study we demonstrate the efficiency and the advantage of this model over models established in practice where the optimal solution has to be adapted to the pricing schema, i.e prices have to be rounded and capacities have to be split.