Optimal overbooking strategies in the airlines using dynamic programming approach in continuous time

Farzad Alavi Fard, Malick Sy and Dmitry Ivanov

Transportation Research Part E: Logistics and Transportation Review, 2019, vol. 128, issue C, 384-399

Abstract: We propose a novel approach to solve the long-standing challenge of airline overbooking management. We solve the problem using dynamic programming with an industrial setting characterised as near-to-perfect competition where airlines strategically overbook their flights to control their market shares instead of a more conventional setting with a revenue maximisation. The theorised optimisation problem is constructed using a terminal utility criterion and with the application of the Hamilton-Jacobi-Bellman equation. The analysis expands on four most commonly applicable overbooking strategies, and the results provide guidance on how airlines can choose a strategy to pursue an optimisation solution best suited to them.

Keywords: Revenue management; Hamilton-Jacobi-Bellman equation; Overbooking management; Dynamic pricing; Continuous time (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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DOI: 10.1016/j.tre.2019.07.001

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