On the fairness of airlines' ticket pricing as a result of revenue management techniques

Pricing and availability of tickets have always been a source of confusion for customers in transportation industries. What is the best time to buy tickets? Why passengers taking the same flight might pay significantly different prices for the same seat? Why round trip tickets between two cities sometimes become cheaper than the one-way flights between them? Is it fair to buy a ticket for an itinerary cheaper than a ticket for just a part of it? These observations make customers wonder why they pay higher prices for shorter flights. In this paper, we study the airlines' revenue management systems and explain some of these pricing schemes in travel industries. We develop a simulator to study the decision making process of network revenue management and use a numerical study to explore these questions and address some explanations for them. We relate these observations to the revenue management measurements such as the bid price or the adjustment cost and show how the dynamic of the network get influenced by these measures that eventually results in unusual pricing. We explain how a zero or small bid price of a specific leg may cause the price of an itinerary be cheaper than one segment of it and that the small bid price is caused by low demand in comparison to the available capacity. We exhibit network revenue management system and show the above issues for a small network. (C) 2014 Elsevier Ltd. All rights reserved.