Airline's Optimal Seating Control Strategy under the Callable Mechanism

Abstract

As to the problem of single-leg seating control of airlines' revenue management in the off-season, this paper uses a new callable mechanism named after callable ticket options to construct a single-leg, three-stage (callable-fare-stage, low-fare-stage, and high-fare-stage) random integer model. We show that by this callable ticket option, the arbitrage in risk hedging can be attained, the characteristic of optimal callable tickets amount can be given, and the numerical simulation results assure the effectiveness of the callable mechanism.