s02lec02

s02lec02 - 15.053 An Airline Revenue Management Problem To...

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1 15.053 To accompany lecture on February 7 z Some additional Linear Programs (not covered in lecture) Airplane Revenue Management Tomotherapy 2 An Airline Revenue Management Problem Background: Deregulation occurred in 1978 Prior to Deregulation Carriers only allowed to fly certain routes. Hence airlines such as Northwest, Eastern, Southwest, etc. Fares determined by Civil Aeronautics Board (CAB) based on mileage and other costs --- (CAB no longer exists) Post Deregulation Any carrier can fly anywhere Fares determined by carrier (and the market) 3 Special Features of Airline Economics z Huge sunk and fixed costs Purchase of airplanes Gate facilities Fuel and crew costs z Low variable costs per passenger $10/passenger or less on most flights z Strong economically competitive environment Near-perfect information and negligible cost of information Symmetric information z No inventories of "product" An empty seat has lost revenue forever: highly perishable inventory. 4 Multiple fare classes: a monopolist’s perspective one price P Q two prices Q P The two fare model presumes that customers are willing to pay the higher price, even if the lower price is
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s02lec02 - 15.053 An Airline Revenue Management Problem To...

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