ABSTRACT
Airlines control pricing with sophisticated software applications developed since US airline deregulation known now as revenue management systems. A mileage-based formula promulgated by the International Air Transport Association, the global airline industry trade association, was widely used to set international fares and remains in use in many markets today. The objective of revenue management is fairly simple: achieve the highest revenue possible through a combination of price discrimination and seat inventory management. Overselling occurs when more passengers show up than expected and the airline doesn’t have enough seats for all of them. Pricing was based on the average cost to produce a unit of output— the airline seat. Demand-based pricing, on the other hand, sets a price based on what the customer is willing to pay, taking full advantage of the market demand. Selling-up occurs when a customer who meets all of the restrictions for a discount fare instead purchases a higher fare.
