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.

An Assessment of Prospect Theory in Tourism Decision-Making Research

“…A similar number of articles (21 articles, 23%) were classified into the second stage, exploring, in which the studies aimed to enrich or complement PT principles, for example, to investigate the possible moderators that regulate the patterns of reference dependence (e.g., Sellers & Nicolau, 2023), loss aversion (e.g., Xu & Zeng, 2022), diminishing sensitivity (e.g., Nicolau et al, 2023), and so on. The remaining majority (55 articles, 59%) were all in the stage of developing, which refined and extended PT beyond its original research setting to underpin arguments and help build knowledge in new research fields and topics, including but not limited to sunk cost (e.g., Su et al, 2022), sales promotion (e.g., Lim & Ok, 2022), inventory management (e.g., C. Li & Yin, 2020), environmental behavior (e.g., Y. Huang et al, 2021), and value of time (e.g., J. M. Chen et al, 2020).…”

“…Value and probability weighting functions in PT have been directly used by several studies either to model choice behavior such as travel arrangements with flight delays (Wen et al, 2019), online hotel bookings (Masiero et al, 2020), and airline demand (C. Li & Yin, 2020), or to quantify subjective utilities in fuzzy environments to solve evaluation/optimization problems regarding scenic spots (Cheng et al, 2019), tourism development plans (Abrishamchi et al, 2019), aircraft rerouting (Hu et al, 2021), and tour route design (Cui & Ma, 2022). In addition, the value function of PT has been integrated into the development of new choice models to better describe choice behavior in transportation (Peeters, 2013) as well as the demand for online tourism (S. X.…”