Revenue Management Without Forecasting or Optimization: An Adaptive Algorithm for Determining Airline Seat Protection Levels

Garrett J. Van Ryzin · Jeff McGill

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

Abstract

We investigate a simple adaptive approach to optimizing seat protection levels in airline revenue management systems. The approach uses only historical observations of the relative frequencies of certain seat-filling events to guide direct adjustments of the seat protection levels in accordance with the optimality conditions of Brumelle and McGill (1993). Stochastic approximation theory is used to prove the convergence of this adaptive algorithm to the optimal protection levels. In a simulation study, we compare the revenue performance of this adaptive approach to a more traditional method that combines a censored forecasting method with a common seat allocation heuristic (EMSR-b).

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References

1951A Stochastic Approximation Method 1999Revenue Management: Research Overview and Prospects 1992Yield Management at American Airlines 1992A Taxonomy and Research Overview of Perishable-Asset Revenue Management: Yield Management, Overbooking, and Pricing 1989OR Practice—Application of a Probabilistic Decision Model to Airline Seat Inventory Control 1954Multidimensional Stochastic Approximation Methods 1993Airline Seat Allocation with Multiple Nested Fare Classes 1987Air travel demand and airline seat inventory management

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