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This paper studies the competitive choice of flight schedules and route prices by airlines operating in a hub-and-spoke system. Airlines choose flight schedules and route prices to maximize profit, considering competitors' decisions. This research makes three contributions. First, an expression is derived calculating demand for each route as a function of the service quality and prices of all routes. Second, a mathematical programming heuristic is developed to find the schedule and prices that maximize an airline's profit against fixed schedules and prices for other airlines. Third, the heuristic is used to study competition by allowing each airline to optimize its schedule and prices against the others' choices and by searching for an equilibrium. The performance of the algorithm is evaluated against alternate heuristics and a five-city sample problem is presented. Finally, two competitive examples are presented and analyzed.
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Dobson et al. (1993) studied this question.
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