New models for single leg airline revenue management with overbooking, no-shows, and cancellations

Official URL: http://192.168.1.20/record=b1301339 (Table of Contents)

Airline revenue management (ARM) problem focuses on finding a seat allocation policy, which results in the maximum profit. Overbooking has been receiving significant attention in ARM over the years, since a major loss in revenue results from cancellations and no-shows. Basically, overbooking problem aims at maximizing the profit by minimizing the number of vacant seats. However, this problem is difficult to handle due to the demand and cancellation uncertainties and the size of the problem. In this study, we propose new models for the static and the dynamic overbooking problems. Due to the complex analytical form of the overbooking problem, in the static case we introduce models that give upper and lower bounds on the optimal expected profit. In the dynamic case, however, we propose a new dynamic programming model, which is based on two streams of arrivals; one for booking and the other one is for cancellation. This approach allows us to come up with a computationally tractable model. We also present numerical results to show the effectiveness of our models.