Single-leg revenue management with downsell and delayed decision making

Daniel Hopman (), Ger Koole () and Rob van der Mei ()
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Daniel Hopman: Vrije Universiteit
Ger Koole: Vrije Universiteit
Rob van der Mei: Vrije Universiteit

Journal of Revenue and Pricing Management, 2017, vol. 16, issue 6, No 6, 594-606

Abstract: Abstract In this paper, we study the impact of downsell in leg revenue management. Downsell happens when a customer purchases a lower fare than she was looking for. We aim to minimize the losses in revenue that arise from this situation. We reformulate the traditional DP formulation to account for this behavior, and show significant revenue gains compared to the traditional DP formulation. Next, we aim to improve customer booking simulation by assuming that customers may postpone their decision to book. Using a surprisingly easy reformulation of our DP strategy we ensure that cheaper classes will never open after they get closed, guaranteeing to customers that booking now is better than doing so in the future. Our results also show that when more than one eighth of passengers postpone their bookings, revenue gains are reported. While this paper is specific to airline revenue management, this practice can also be applied for other industries that practice revenue management, such as the hospitality or car rental industries.

Keywords: inventory control; leg-level optimization; downsell; dynamic programming (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/s41272-017-0097-x

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