Designing and Pricing Services Based on Customer-Perceived Value: An Airline Company Feasibility Study

We propose a new integrated model for pricing airline tickets that takes into account the perceived value of multiple services associated with a given flight. For instance, clients perceive benefits on different attributes such as refund options, baggage allowances, time slots, days of operations, Web check-in services, as well as airline brand. These elements of perceived values are not, to our knowledge, modeled in existing yield management systems. Our integrated model includes a classical aggregate planner for services as well as a share of choice. In this paper, we have worked closely with an airline company and provided it with relevant managerial recommendations.