Dynamic Airline Revenue Management with Multiple Semi-Markov Demand

Shelby L. Brumelle · Darius Walczak

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Supply Chain and Inventory Management Aviation Industry Analysis and Trends Air Traffic Management and Optimization

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.

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References

1994Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons 1999Revenue Management: Research Overview and Prospects 1992A Taxonomy and Research Overview of Perishable-Asset Revenue Management: Yield Management, Overbooking, and Pricing 2000Optimal Dynamic Pricing for Perishable Assets with Nonhomogeneous Demand 1993A Model for Dynamic Airline Seat Inventory Control with Multiple Seat Bookings 1999Airline Yield Management with Overbooking, Cancellations, and No-Shows 1993Airline Seat Allocation with Multiple Nested Fare Classes 1995Optimal and Approximate Control Policies for Airline Booking with Sequential Nonmonotonic Fare Classes

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