Itinerary-based nesting control with upsell

Chan Seng Pun, Diego Klabjan, Fikri Karaesmen and Sergey Shebalov
Additional contact information
Diego Klabjan: Northwestern University
Fikri Karaesmen: Koc University
Sergey Shebalov: Sabre Holdings

Journal of Revenue and Pricing Management, 2016, vol. 15, issue 2, No 4, 107-137

Abstract: Abstract In order to accept future high-yield booking requests, airlines protect seats from low-yield passengers. More seats may be reserved when passengers faced with closed fare classes can upsell to open higher fare classes. We address the airline revenue management problem with capacity nesting and customer upsell, and formulate this problem by a stochastic optimization model to determine a set of static protection levels for each itinerary. We apply an approximate dynamic programming framework to approximate the objective function by piecewise linear functions, whose slopes (marginal revenue) are iteratively updated and returned by an efficient heuristic that simultaneous handles both nesting and upsells. The resulting allocation policy is tested over a real airline network and benchmarked against the randomized linear programming bid-price policy under various demand settings. Simulation results suggest that the proposed allocation policy significantly outperforms when incremental demand or upsell probability are high. Structural analyses are also provided for special demand dependence cases.

Keywords: network revenue management; capacity nesting; customer upsell; approximate dynamic programming (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/rpm.2015.21 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:jorapm:v:15:y:2016:i:2:d:10.1057_rpm.2015.21

Ordering information: This journal article can be ordered from
https://www.palgrave.com/gp/journal/41272

DOI: 10.1057/rpm.2015.21

Access Statistics for this article

Journal of Revenue and Pricing Management is currently edited by Ian Yeoman

More articles in Journal of Revenue and Pricing Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().