The impact of customer buying behavior on the optimal allocation decisions

When airlines sell the same or similar seats on an air flight at different fares, the demand for any given fare class depends on the demand for the other fare classes. Demand is affected by customer buying behaviors e.g. diversion, strategic customer behavior. Diversion is denoted for situations when customers buy other fare class tickets if the originally requested fare is unavailable. Strategic customer behavior is used for situations when customers delay a purchase until some point in the future and wait in anticipation of reopening of lower fare. Customer buying behaviors have a considerable profit implication, which was ignored in many earlier studies. We develop an extension of the approach taken by Wilson et al. (2006) to multi-period, multi-fare airline seat inventory allocation decisions and heuristic models with efficient computer algorithms to reduce computation time. Our numerical results are compared with those from the expected marginal seat revenue (EMSR) approach, an exhaustive search, a simulation approach and the approach outlined by Wilson et al. (2006).