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Single-Leg Airline Revenue Management with Overbooking

Author

Listed:
  • Nurşen Aydın

    (Manufacturing Systems and Industrial Engineering, Sabancı University, Orhanlı-Tuzla, 34956 Istanbul, Turkey)

  • Ş. İlker Birbil

    (Manufacturing Systems and Industrial Engineering, Sabancı University, Orhanlı-Tuzla, 34956 Istanbul, Turkey)

  • J. B. G. Frenk

    (Manufacturing Systems and Industrial Engineering, Sabancı University, Orhanlı-Tuzla, 34956 Istanbul, Turkey)

  • Nilay Noyan

    (Manufacturing Systems and Industrial Engineering, Sabancı University, Orhanlı-Tuzla, 34956 Istanbul, Turkey)

Abstract

Airline revenue management is concerned with identifying the maximum revenue seat allocation policies. Because a major loss in revenue results from cancellations and no-shows, overbooking has received significant attention in the literature over the years. In this study, we propose new static and dynamic single-leg overbooking models. In the static case we introduce two models: the first one aims to determine the overbooking limit and the second one is about finding the overbooking limit and the booking limits to allocate the virtual capacity among multiple fare classes. Because the second static model is hard to solve, we also introduce computationally tractable models that give upper and lower bounds on its optimal expected net revenue. In the dynamic case, we propose a dynamic programming model, which is based on two streams of events. The first stream corresponds to the arrival of booking requests and the second one corresponds to the cancellations. We conduct simulation experiments to illustrate the effectiveness of the proposed models.

Suggested Citation

  • Nurşen Aydın & Ş. İlker Birbil & J. B. G. Frenk & Nilay Noyan, 2013. "Single-Leg Airline Revenue Management with Overbooking," Transportation Science, INFORMS, vol. 47(4), pages 560-583, November.
    • Handle: RePEc:inm:ortrsc:v:47:y:2013:i:4:p:560-583
    DOI: 10.1287/trsc.1120.0444
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    References listed on IDEAS

    as
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    2. ChihChien Chen, 2016. "Cancellation policies in the hotel, airline and restaurant industries," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 15(3), pages 270-275, July.
    3. Mika Sumida & Huseyin Topaloglu, 2019. "An Approximation Algorithm for Capacity Allocation Over a Single Flight Leg with Fare-Locking," INFORMS Journal on Computing, INFORMS, vol. 31(1), pages 83-99, February.
    4. Lan, Yingjie & Ball, Michael O. & Karaesmen, Itir Z. & Zhang, Jean X. & Liu, Gloria X., 2015. "Analysis of seat allocation and overbooking decisions with hybrid information," European Journal of Operational Research, Elsevier, vol. 240(2), pages 493-504.
    5. Maisonnave, Hélène & Mamboundou, Pierre Nziengui, 2022. "Agricultural economic reforms, gender inequality and poverty in Senegal," Journal of Policy Modeling, Elsevier, vol. 44(2), pages 361-374.
    6. Ş. İlker Birbil & J. B. G. Frenk & Joaquim A. S. Gromicho & Shuzhong Zhang, 2014. "A Network Airline Revenue Management Framework Based on Decomposition by Origins and Destinations," Transportation Science, INFORMS, vol. 48(3), pages 313-333, August.
    7. David Sayah & Stefan Irnich, 2016. "Optimal Booking Control in Airline Revenue Management with Two Flights and Flexible Products," Working Papers 1604, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    8. Nurşen Aydın & Ş. İlker Birbil & Hüseyin Topaloğlu, 2017. "Delayed Purchase Options in Single-Leg Revenue Management," Transportation Science, INFORMS, vol. 51(4), pages 1031-1045, November.
    9. Aydin, N. & Birbil, S.I., 2018. "Decomposition methods for dynamic room allocation in hotel revenue management," European Journal of Operational Research, Elsevier, vol. 271(1), pages 179-192.
    10. David Sayah & Stefan Irnich, 2019. "Optimal booking control in revenue management with two substitutable resources," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 89(2), pages 189-222, April.
    11. Klein, Robert & Koch, Sebastian & Steinhardt, Claudius & Strauss, Arne K., 2020. "A review of revenue management: Recent generalizations and advances in industry applications," European Journal of Operational Research, Elsevier, vol. 284(2), pages 397-412.

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