Optimization of Mixed Fare Structures: Theory and Applications

This paper develops a theory for optimizing revenue through seat inventory control that can be applied in a variety of airline fare structures, including those with less restricted and fully undifferentiated fare products that have become more common in the recent past. We describe an approach to transform the fares and the demand of a general discrete choice model to an equivalent independent demand model. The transformation and resulting fare adjustment approach is valid for both static and dynamic optimization and extends to network revenue management applications. This transformation allows the continued use of the optimization algorithms and seat inventory control mechanisms of traditional revenue management systems, developed more than two decades ago under the assumption of independent demands for fare classes.