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Optimal Booking Control in Airline Revenue Management with Two Flights and Flexible Products

David Sayah () and Stefan Irnich ()
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David Sayah: Johannes Gutenberg University Mainz
Stefan Irnich: Johannes Gutenberg University Mainz

No 1604, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

Abstract: Chen et al. (Chen S, Gallego G, Li M Z, and Lin B (2010) Optimal seat allocation for two-?ight problems with a ?exible demand segment, EJOR, 201(3), 897–908) analyze the structure of optimal booking control in the airline revenue management problem with two ?ights and customers that can beservedbyallocatingaseatoneither?ight. Theirmodelrequiresatmostonerequestinabooking period. Theyderiveanoptimalswitchingcurve-basedpolicybyexploitingconcavity,submodularity, and subconcavity. We address a couple of open questions with the following contributions: First, we set up a model covering a broader class of this problem. Particularly, our model applies to static demand distributions, i.e, when customers arrive in batches but can be partially accepted and assigned. We show that the monotonicity properties are valid under both dynamic and static demand models providing self-contained proofs. Second, we provide a unifying characterization of the structure of optimal booking control in the form of “booking paths”. This concept formalizes the idea that an optimal allocation of a batch demand decomposes into a sequence of optimal singlerequestallocations. Third, weexaminetherelationshipbetweenbookingpathsandswitchingcurves showing that both characterize equivalent policies. Computationally, this equivalence implies that thereisnoadvantageofimplementingswitchingcurves. Rather, onecanresorttothesimplecriteria which we propose in order to construct the optimal booking paths.

Keywords: dynamic programming; airline revenue management; ?exible and opaque products; optimal booking policies (search for similar items in EconPapers)
Date: 2016-01-07
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