A fluid approximation for the single-leg fare allocation problem with nonhomogeneous poisson demand

Selçuk Korkmaz, O. Erhun Kundakcioglu () and Orhan Sivrikaya
Additional contact information
Selçuk Korkmaz: Ozyegin University
O. Erhun Kundakcioglu: Ozyegin University
Orhan Sivrikaya: Maltepe University

Journal of Revenue and Pricing Management, 2022, vol. 21, issue 1, No 7, 96 pages

Abstract: Abstract Fare allocation for legs and O&D pairs plays a crucial role in airline revenue management. Despite a large number of dynamic pricing studies, there are only a few widely adopted studies in which assumptions affect most tactical decisions with potentially large impacts on airline profitability. These decisions involve approximating future pricing schemes, allocation of fare classes, and setting booking limits. We propose a fare allocation model for a single leg in the presence of a realistic nonhomogeneous Poisson demand with an increasing rate. We aim to compute when and how to markup the price for an airfare product (switch to an upper fare class) to maximize the expected revenue. We study a fluid approximation of the underlying stochastic problem considering independent demand from each customer segment and examine different properties that lead to several important insights. Finally, we propose a dynamic look-ahead pricing scheme to compare our fluid approximation results against the well-known EMSRb heuristic and a dynamic programming solution on randomly generated booking request data. Numerical examples illustrate the effectiveness of our proposed approach.

Keywords: Revenue management; Airline operations; Inventory allocation; Nonhomogeneous Poisson process (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41272-021-00284-4 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:21:y:2022:i:1:d:10.1057_s41272-021-00284-4

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

DOI: 10.1057/s41272-021-00284-4

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 ().