Working Paper Article Version 1 This version is not peer-reviewed

Airlines Baggage Price Optimization Model

Version 1 : Received: 28 April 2020 / Approved: 29 April 2020 / Online: 29 April 2020 (10:19:54 CEST)

How to cite: Andreev, M.A.; Kovalev, K.P.; Krudova, E.I.; Okhrimenko, D.; Titov, S.A.; Wijler, D.A. Airlines Baggage Price Optimization Model. Preprints 2020, 2020040502 Andreev, M.A.; Kovalev, K.P.; Krudova, E.I.; Okhrimenko, D.; Titov, S.A.; Wijler, D.A. Airlines Baggage Price Optimization Model. Preprints 2020, 2020040502

Abstract

Baggage overweight is a significant phenomenon in the air travel in- dustry which is both regulated by the governments and highly profitable for the airlines. The recent years increase in airlines' profits is attributed to so-called ancillary payments – all consumer costs excluding the actual transportation fare. Baggage overweight fees, being a part of such pay- ments, have high profit-generation potential. Is the pricing for baggage overweight positioned correctly? The rationality of policies currently used by airlines is questionable, as they lack a customer-oriented marketing ap- proach. The general purpose of this research is to explore the possibilities of rational baggage overweight pricing for airlines by developing a multi- level price optimization model aimed to maximize company revenue. The modeling is based on determining consumer Willingness-To- Pay values for baggage overweight, and providing an optimal ticket price for them to maximize company expected revenue. The total profit value is forecasted too, based on the company market share and revenue level.

Supplementary and Associated Material

Subject Areas

WTP; price adjusting; price optimization; airlines; bag- gage price; optimization model

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