Benchmarking filter-based demand estimates for airline revenue management

Philipp Bartke (), Natalia Kliewer () and Catherine Cleophas ()
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Philipp Bartke: Freie Universität Berlin
Natalia Kliewer: Freie Universität Berlin
Catherine Cleophas: RWTH Aachen University

EURO Journal on Transportation and Logistics, 2018, vol. 7, issue 1, No 3, 57-88

Abstract: Abstract In recent years, revenue management research developed increasingly complex demand forecasts to model customer choice. While the resulting systems should easily outperform their predecessors, it appears difficult to achieve substantial improvement in practice. At the same time, interest in robust revenue maximization is growing. From this arises the challenge of creating versatile and computationally efficient approaches to estimate demand and quantify demand uncertainty. Motivated by this challenge, this paper introduces and benchmarks two filter-based demand estimators: the unscented Kalman filter and the particle filter. It documents a computational study, which is set in the airline industry and compares the estimators’ efficiency to that of sequential estimation and maximum-likelihood estimation. We quantify estimator efficiency through the posterior Cramér–Rao bound and compare revenue performance to the revenue opportunity. Both indicate that unscented Kalman filter and maximum-likelihood estimation outperform the alternatives. In addition, the Kalman filter requires comparatively little computational effort to update and quantifies demand uncertainty.

Keywords: Revenue management; Demand estimation; Uncertainty; Kalman filter; Particle filter; Simulation (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s13676-017-0109-4

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