Estimating customers’ preferences through a discrete choice modeling approach : the case of Middle East Airlines

Abstract

Discrete Choice Models are used to estimate customers’ sensitivities for different attributes of a product. Applied to the airline industry, this method helps us capture the travelers’ choice behavior by estimating their preferences. This information provides an airline’s management team with additional insights about their customers and helps them take more informed marketing measures to increase their market share and profits. In addition to that, using these estimates, the airline can simulate demand and optimize the way it sets its protection levels for the various fare structures of its flights. Towards this end, we conducted a project with Middle East Airlines and were able to prove the viability of estimating MEA’s customers’ choice behavior on the Dubai-Beirut route. In this project report, we provide an overview of the origin of yield management and revenue management systems, present a literature review on the theories of discrete choice models and choice-based revenue management and report the attained preferences for price, flight date and flight time of MEA’s customers. Moreover, we explain the project’s approach, the choice model implementation framework as well as analysis, recommendations for further improving the results and next steps that management can take to build on the work conducted in this thesis-project.