Optimisation of Airline Dynamic Multileg Capacity Control Problem considering Competition from High-Speed Rail

Abstract

This paper develops an optimisation model to address the dynamic multileg capacity control problem for the airline, taking into account the competition from the high-speed rail (HSR). Conventional capacity control models assume that the passenger demand is independent and that airlines control capacity independently. The proposed model considers the semi-independent demand, i.e., a customer of certain fare class arrives and makes choices from available alternatives provided by both airline and HSR. If the customer’s first option is rejected, their booking request will be diverted both horizontally to the other operator and vertically to parallel flights within the same operator. Making use of this assumption, the customer’s second and third choices are captured. With this model, airlines can control the sales process to determine whether or not to accept an initial booking request or diverted booking request to maximise their revenue. The deterministic linear programming (DLP) method is proposed as a model solution, enabling the computation of partitioned allocation and the bid price of each product. The optimal capacity control strategy is then obtained based on bid price control. To validate the model, numerical experiments are conducted to simulate customers' actual arrival and to show that the model is capable of producing better revenue, especially in the event that demand exceeds supply. Moreover, the demand diversion effect brings more revenue for both airline and HSR, and this potential revenue source has been ignored by previous research studies.