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Multi‐period airline overbooking with multiple fare classes

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  • Richard E. Chatwin

Abstract

Consider a multi‐period multi‐fare class airline overbooking problem that relates to a single‐leg flight. Passengers may cancel their reservations at any time, including being no‐shows at flight‐time. Canceling passengers receive a refund that depends on their fare class, e.g., supersaver, coach, etc. At flight‐time, the airline bumps passengers in excess of flight capacity and pays a penalty for so doing. A continuous state‐space dynamic programming model is developed in which the state is the numbers of reservations currently on hand in each fare class. In each period, reservation requests occur in only one fare class and the fraction of reservations canceling in each class is independent of the number of reservations therein. A booking‐limit policy is optimal, i.e., in each period the airline accepts reservation requests up to a booking limit if the number of initial reservations in the fare class is less than the booking limit, and declines reservation requests otherwise. The booking limits for each class depend on the numbers of reservations in the other classes. When there are two fare classes the optimal booking limits in each class decrease with the number of reservations in the other class. © 1996 John Wiley & Sons, Inc.

Suggested Citation

  • Richard E. Chatwin, 1996. "Multi‐period airline overbooking with multiple fare classes," Naval Research Logistics (NRL), John Wiley & Sons, vol. 43(5), pages 603-612, August.
    • Handle: RePEc:wly:navres:v:43:y:1996:i:5:p:603-612
    DOI: 10.1002/(SICI)1520-6750(199608)43:53.0.CO;2-9
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    References listed on IDEAS

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    1. E. Shlifer & Y. Vardi, 1975. "An Airline Overbooking Policy," Transportation Science, INFORMS, vol. 9(2), pages 101-114, May.
    2. Alstrup, Jens & Boas, Soren & Madsen, Oli B. G. & Vidal, ReneVictor Valqui, 1986. "Booking policy for flights with two types of passengers," European Journal of Operational Research, Elsevier, vol. 27(3), pages 274-288, December.
    3. Varda Liberman & Uri Yechiali, 1978. "On the Hotel Overbooking Problem--An Inventory System with Stochastic Cancellations," Management Science, INFORMS, vol. 24(11), pages 1117-1126, July.
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    4. Dimitris Bertsimas & Sanne de Boer, 2005. "Simulation-Based Booking Limits for Airline Revenue Management," Operations Research, INFORMS, vol. 53(1), pages 90-106, February.

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