Nested Booking Limit
In the context of airline seat inventory control, a nested booking limit is a strategy used to maximize revenue. It’s based on the concept of “nesting” different fare classes within the same inventory.
Airlines typically offer a variety of fares for the same flight, each with different pricing and restrictions. The lowest fare classes have the most restrictions and are non-refundable, while the highest fare classes are fully flexible and refundable.
Airlines use booking limit control systems to decide how many seats to sell in each fare class. In a nested booking limit system, the booking limit for a higher fare class includes the booking limit for the lower fare class. This is because customers buying a higher fare class ticket could also have bought a lower fare class ticket, but not vice versa.
This approach ensures that the airline reserves some seats for potential late-booking, high-fare customers while still selling seats to early-booking, low-fare customers.
For example, let’s say there are 100 seats on a flight. The airline might set a booking limit of 80 seats for the lowest fare class, meaning it will sell no more than 80 tickets at the lowest fare. The booking limit for the next fare class might be 90 seats. This “nests” the lower fare class within the higher one – anyone buying a ticket in the higher fare class could also take a seat in the lower fare class. The highest fare class might have a booking limit of 100, including all the seats on the plane. This ensures the airline keeps some seats available for customers willing to pay the highest fares.
Example of Nested Booking Limit
Suppose we have a flight with 150 seats. The airline offers three fare classes: Economy, Premium Economy, and Business. Each fare class has a different price, with Business being the most expensive and Economy being the least.
To maximize revenue, the airline uses a nested booking limit system to control how many seats it sells in each fare class. The airline might set the following booking limits:
- Economy: 100 seats
- Premium Economy: 120 seats
- Business: 150 seats
This means that the airline will sell a maximum of 100 seats at the Economy fare, an additional 20 seats at the Premium Economy fare, and a further 30 seats at the Business fare.
The lower fare classes are “nested” within the higher ones. So, if a passenger buys a Business class ticket, they could also have bought a Premium Economy or Economy ticket. However, if a passenger buys an Economy ticket, they cannot take up a Premium Economy or Business seat.
This way, the airline ensures it has some seats reserved for passengers willing to pay more for Premium Economy or Business class, while still filling the bulk of the plane with Economy passengers. If the flight date approaches and the higher fare classes aren’t selling as well, the airline can release more seats to the Economy class to ensure the flight is as full as possible.
