Dynamic Airline Revenue Management with Multiple Semi-Markov Demand

Shelby Brumelle and Darius Walczak ()
Additional contact information
Shelby Brumelle: Deceased. Formerly with the Faculty of Commerce and Business Administration, University of British Columbia
Darius Walczak: Pros Revenue Management Inc., 3100 Main Street, Suite 900, Houston, Texas 77002

Operations Research, 2003, vol. 51, issue 1, 137-148

Abstract: When a customer requests a discount fare, the airline must decide whether to sell the seat at the requested discount or to hold the seat in hope that a customer will arrive later who will pay more. We model this situation for a single-leg flight with multiple fare classes and customers who arrive according to a semi-Markov process (possibly nonhomogeneous). These customers can request multiple seats (batch requests) and can be overbooked. Under certain conditions, we show that the value function decreases as departure approaches. If each customer only requests a single seat or if the requests can be partially satisfied, then we show that there are optimal booking curves which decrease as departure approaches. We also provide counterexamples to show that this structural property of the optimal policy need not hold for more general arrival processes if the requests can be for more than one seat and must be accepted or rejected as a whole.

Keywords: Dynamic programming/optimal control: semi-Markov; Industries: Transportation/shipping; airline revenue management; Probability: stochastic model application (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (14)

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