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Optimal Booking Control in Airline Revenue Management with Two Flights and Flexible Products

Author

Listed:
  • David Sayah

    () (Johannes Gutenberg University Mainz)

  • Stefan Irnich

    () (Johannes Gutenberg University Mainz)

Abstract

Chen et al. (Chen S, Gallego G, Li M Z, and Lin B (2010) Optimal seat allocation for two-?ight problems with a ?exible demand segment, EJOR, 201(3), 897–908) analyze the structure of optimal booking control in the airline revenue management problem with two ?ights and customers that can beservedbyallocatingaseatoneither?ight. Theirmodelrequiresatmostonerequestinabooking period. Theyderiveanoptimalswitchingcurve-basedpolicybyexploitingconcavity,submodularity, and subconcavity. We address a couple of open questions with the following contributions: First, we set up a model covering a broader class of this problem. Particularly, our model applies to static demand distributions, i.e, when customers arrive in batches but can be partially accepted and assigned. We show that the monotonicity properties are valid under both dynamic and static demand models providing self-contained proofs. Second, we provide a unifying characterization of the structure of optimal booking control in the form of “booking paths”. This concept formalizes the idea that an optimal allocation of a batch demand decomposes into a sequence of optimal singlerequestallocations. Third, weexaminetherelationshipbetweenbookingpathsandswitchingcurves showing that both characterize equivalent policies. Computationally, this equivalence implies that thereisnoadvantageofimplementingswitchingcurves. Rather, onecanresorttothesimplecriteria which we propose in order to construct the optimal booking paths.

Suggested Citation

  • 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.
  • Handle: RePEc:jgu:wpaper:1604
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    File URL: http://www.macro.economics.uni-mainz.de/RePEc/pdf/Discussion_Paper_1604.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
    1. Guillermo Gallego & Robert Phillips, 2004. "Revenue Management of Flexible Products," Manufacturing & Service Operations Management, INFORMS, vol. 6(4), pages 321-337, January.
    2. Morton, Alec, 2006. "Structural properties of network revenue management models: an economic perspective," LSE Research Online Documents on Economics 2563, London School of Economics and Political Science, LSE Library.
    3. Zhuang, Weifen & Li, Michael Z.F., 2012. "Monotone optimal control for a class of Markov decision processes," European Journal of Operational Research, Elsevier, vol. 217(2), pages 342-350.
    4. Chen, Shaoxiang & Gallego, Guillermo & Li, Michael Z.F. & Lin, Bing, 2010. "Optimal seat allocation for two-flight problems with a flexible demand segment," European Journal of Operational Research, Elsevier, vol. 201(3), pages 897-908, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    dynamic programming; airline revenue management; ?exible and opaque products; optimal booking policies;

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