Seminar

Department of Systems Engineering and Engineering Management
The Chinese University of Hong Kong

Title:  Hidden-City Ticketing: the Cause and Impact

Speaker: Mr. Zizhuo Wang
               Dept. of Management Science and Engineering
               Stanford University

Date: Jan. 12th, 2012 (Thursday)

Time: 11:30 a.m. - 12:30 p.m.

Venue: Room 513
            William M.W. Mong Engineering Building
            (Engineering Building Complex Phase 2)
            CUHK

Abstract:
Hidden-city ticket is an interesting airline ticket pricing phenomenon. It occurs when an itinerary connecting at an intermediate city is less expensive than a ticket from the origin to the intermediate city. In such a case, passengers traveling to the intermediate city will have the incentive to pretend to be traveling to the final destination, deplane at the connection point and forgo the unused portion of the ticket. Hidden-city opportunities are not uncommon nowadays.

In this paper, we establish a mathematical model to analyze the cause of hidden-city ticketing and its impact on both airlines' revenues and consumers' welfare. We consider a flight network revenue management model and show that the hidden-city opportunity may arise when there is a large difference in price elasticity of demand on related itineraries. We show that when the passengers take advantages of such opportunities whenever possible, the airlines had better to react, and the optimal reaction will no longer contain any hidden-city opportunities. However, the airline's revenue always decreases from that when passengers do not practice such ticketing strategies. We show that the decrease could be as much as half of the original optimal revenue, but it cannot be more if the airline takes a hub-and-spoke network. Meanwhile, as a result of airline's reaction, the fares to the final destination of a hidden-city itinerary will rise, which eventually will hurt the passengers. We take an exogenous competition model in our analysis and validate it through a game theoretic approach. Numerical results are presented to illustrate our results.

Biography:

Zizhuo Wang is a Ph.D. candidate at the department of Management Science and Engineering at Stanford University working under the direction of Prof. Yinyu Ye. His research interest is mainly in operations research with a recent focus in revenue management. He is interested in applying optimization and statistic methods in decision making problems and studying the insights in these problems. Before that, he worked in internet economics, information market, and stochastic/robust optimization. He obtained his B.S. degree in mathematics in Tsinghua University at 2007.

************************* ALL ARE WELCOME ************************

Host: Prof. Duan Li

Tel: (852) 3943-8316/8323

Email: dli@se.cuhk.edu.hk

Enquiries: Prof. Nan Chen or Prof. Sean X. Zhou
                 Department of Systems Engineering and Engineering Management
                 CUHK

Website: http://www.se.cuhk.edu.hk/~seem5201

Email: seem5201@se.cuhk.edu.hk

********************************************************************