Airline inventory control of callable tickets based on real option

It is extremely important for airlines to study the flexible seat inventory control issues to prevent flight revenue from spoiled due to inaccurate prediction of air passenger demand. This paper provided a novel capacity control method based on real option and showed how airlines may be considered as the holder of callable tickets. In a fully competitive market, a partial differential equation model was used to describe the financial aspects of the capacity of callable tickets. Based on the new method, the tickets' capacity has been decided using finite difference method; the amount of callable tickets sold has been calculated using an integral linear programming. Meanwhile, based on this paper presents a model to optimize the quantity of the callable ticket. Such capacity model was much better than the method that without option into consideration.