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Revenue impacts of fare input and demand forecast accuracy in airline yield management

Author

Listed:
  • L R Weatherford

    (University of Wyoming)

  • P P Belobaba

    (Massachusetts Institute of Technology)

Abstract

Most airline yield management seat allocation models require inputs of the expected demand by fare class, the variance of this demand, and a revenue value associated with the bookings expected in each class. In this paper, we examine the impacts of errors in the demand forecasts and fare estimates on the revenue performance of some commonly used seat allocation heuristic decision rules. Through simulation analysis of scenarios in which the fare or demand inputs used by the models differ from the ‘actual’ values simulated in the flight booking process, we examine the effects of unexpected variability in the actual fare values, misestimation of the mean fare values of the different booking classes, and forecasting errors in the expected demand for each class. Our findings confirm previous studies that found the accuracy of the demand forecasts to be of greatest importance, but we also uncover some instances where misestimation of the mean demands and/or mean fare values used as inputs to the decision models can actually be beneficial. At the same time, we conclude that the variability of actual fare values around the mean fare values used as inputs does not have a significant impact, given the mathematical characteristics of existing EMSR seat allocation methods.

Suggested Citation

  • L R Weatherford & P P Belobaba, 2002. "Revenue impacts of fare input and demand forecast accuracy in airline yield management," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 53(8), pages 811-821, August.
    • Handle: RePEc:pal:jorsoc:v:53:y:2002:i:8:d:10.1057_palgrave.jors.2601357
    DOI: 10.1057/palgrave.jors.2601357
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    Citations

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    Cited by:

    1. Guanghua Han & Xujin Pu & Bo Fan, 2017. "Sustainable Governance of Organic Food Production When Market Forecast Is Imprecise," Sustainability, MDPI, vol. 9(6), pages 1-20, June.
    2. Ernst Ahlberg & Irina Mirkina & Alfred Olsson & Christian Söyland & Lars Carlsson, 2023. "On the selection of relevant historical demand data for revenue management applied to transportation," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(4), pages 266-275, August.
    3. Georgia Perakis & Guillaume Roels, 2010. "Robust Controls for Network Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 56-76, November.
    4. Thomas Fiig & Larry R. Weatherford & Michael D. Wittman, 2019. "Can demand forecast accuracy be linked to airline revenue?," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 18(4), pages 291-305, August.
    5. Catherine Cleophas & Daniel Kadatz & Sebastian Vock, 2017. "Resilient revenue management: a literature survey of recent theoretical advances," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 16(5), pages 483-498, October.
    6. Rennie, Nicola & Cleophas, Catherine & Sykulski, Adam M. & Dost, Florian, 2021. "Identifying and responding to outlier demand in revenue management," European Journal of Operational Research, Elsevier, vol. 293(3), pages 1015-1030.
    7. Greta Laage & Emma Frejinger & Andrea Lodi & Guillaume Rabusseau, 2021. "Assessing the Impact: Does an Improvement to a Revenue Management System Lead to an Improved Revenue?," Papers 2101.10249, arXiv.org, revised Jun 2021.
    8. Wang, Jiamin & Xiao, Baichun, 2017. "A minmax regret price control model for managing perishable products with uncertain parameters," European Journal of Operational Research, Elsevier, vol. 258(2), pages 652-663.
    9. Gillen, David & Gados, Alicja, 2008. "Airlines within airlines: Assessing the vulnerabilities of mixing business models," Research in Transportation Economics, Elsevier, vol. 24(1), pages 25-35.
    10. E A Silver, 2004. "An overview of heuristic solution methods," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 55(9), pages 936-956, September.

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