Homogeneous service with heterogeneous products: Relationships among airline ticket fares and purchase fences. (August 2016)

• Record Type: Journal Article
• Authors: Tsai, Tsung-Hsien
• Is Part Of: Journal of air transport management. Volume 55(2016)
• Page Start: 164
• Page End: 175
• Publication Date: 2016-08
• Subjects: Air fare -- Fences -- Booking classes -- Logit model -- Revenue management; Airlines -- Management -- Periodicals; Aeronautics, Commercial -- Management -- Periodicals; 387.7068
• DOI: 10.1016/j.jairtraman.2016.05.008
• Languages: English
• ISSNs: 0969-6997

Abstract

Abstract: A fare table derived from homogeneous service is essential for revenue management applications in the airline industry. Restrictions or so-called fences are usually regarded as a useful tool to differentiate homogeneous seat service. Nevertheless, the relationships among fares and fences are not yet clear. This study aims to investigate passengers' preferences on the choice of ticket alternatives describing by fares and fences and using Taiwan domestic air travel as an example. Regarding the attributes that an airline ticket may be attached such as departure time, booking time, ticket validity, changing fee, refund and fare, stated preference questionnaires are developed with multiple hypothetical scenarios for respondents to select in the experiment. 398 valid samples are collected for the logit model analysis. With the use of mixed logit model to accommodate both passengers' heterogeneity and also the issue of relevant alternatives in the experiment, the results show statistical significance of all applied attributes with correct signs. In addition, passengers possess different attitudes on the fence of booking time, ticket validity, changing fee, and fare. Willingness-to-pay of each fence is further calculated to ultimately generate a fare table based on the combination of fences for practice use. Highlights: This paper investigates trade-off relationships among airline fares and fences. Applied fences are departure time, booking time, validity, changing fee, refund. Mixed logit model show statistical significance of the applied fences. Heterogeneity and IIA assumption should be accommodated for unbiased results. A customized fare table is demonstrated for structuring fare classes.