A modified callable mechanism for seat inventory control of airlines based on buy-up behavior

Abstract

This paper introduces the buy-up behavior to the callable mechanism of seat inventory control, creating a modified callable mechanism, and studies the airline revenue under the modified mechanism. Specifically, the willingness to pay of consumers was taken as the reference of utility, according to the utility metrics of the prospect theory. Then, the willingness to pay for three types of tickets was expressed in the form of exponential smoothing. Next, the buy-up (demand transfer) probabilities were derived under four different relationships between the willingness to pay and ticket prices. On this basis, the traditional callable mechanism was modified, and the conditions for revenue growth were identified for different buy-up behaviors. Finally, the modified callable mechanism and the traditional one were compared through two cases study. The results show that, the modified mechanism, which considers the buy-up behavior, achieved a 3.17% (in CASE A) or 0.74% (in CASE B) higher airline revenue than the traditional mechanism. The research results shed new light on the callable mechanism from the perspective of consumer choice.