Optimal pricing decision and capacity allocation of opaque selling in airline revenue management

Abstract

This paper studies the opaque selling strategy for a parallel-flight airline based on a newsvendor model with stochastic demand. The optimal pricing decision and capacity allocation policy are obtained and analyzed subject to necessary assumptions. There is a relationship between the optimal allocated capacities of these flights, and the airline can adjust its capacity allocation decisions according to this relationship. In addition, the airline is suggested to allocate more capacity for opaque seats if the demand variance is high or the difference in consumer’s preferences between flights is small; meanwhile, a lower price for opaque seats will be provided when the variance is high or the difference is large. Numerical experiments are presented to show the effectiveness of the opaque selling strategy, and the results indicate that this strategy brings a 1.09% revenue increment on average compared to the conventional strategy.