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This paper attempts to establish a framework to help airline alliances effectively allocate their seat capacity with the purpose of maximizing alliances’ revenue. By assuming the airline alliance as the auctioneer and seat capacity in an itinerary as lots, the combinatorial auction model is constructed to optimize the allocation of the seat, and the revenue sharing method is established to share revenue between partners by Vickrey-Clarke-Groves (VCG) mechanism. The result of the numerical study shows that the seat capacity allocation is effective even without information exchanging completely and the twofold revenue shares method shows more excitation for the airlines.

Capacity Allocation and Revenue Sharing in Airline Alliances: A Combinatorial Auction-Based Modeling