Transfer price optimization for option-based airline alliance revenue management

Recently, an option-based capacity control process for the case of airline alliance revenue management with two partner airlines providing flight tickets on a single flight leg has been proposed. This previous work describes the determination of the booking limits as control variables for the capacity control by means of real options as well as simulation models which consider the option-based process to evaluate the booking process of the partner airlines within the strategic alliance. The booking limits are improved with simulation-based optimization in an iterative process. However, the transfer prices are assumed to be given. In this paper, the optimal transfer prices will be determined by a negotiation process. The results of the option-based capacity control process combined with transfer price optimization will be compared with the results of a first-come-first-served approach, ex post optimal solutions, a blocked seat allotment procedure and a random approach.