Revenue Management and Airline Alliances

Based on demand forecasting and an optimisation model, revenue management systems are the main tool for enhancing profit and the most respected application of operation research in the airline industry today. The growth of airline alliances that involve cooperation between two or more airlines in a wide range of commercial and operational areas, creates the need for alliance revenue mamagement. Code share arrangements have a direct impact on seat inventory control and the revenue realized from the sale of a seat. Advantages and disadventages of two main alternatives for maximizing total revenue are considered in this paper. The approach of centralized revenue mamagement, which treats the flight networks of alliance partners as comprising a single network, is associated with the need for increased coordination of information flows and severely impacts the autonomy of participating carriers. Decentralized revenue management using a method of applying the marginal revenue equilibrium conditions allows carriers to control their own inventory based on independently established parameters and maximizes combined revenues and revenues of each individual airline partner.