Single-leg airline revenue management with overbooking

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Official URL: http://dx.doi.org/10.1287/trsc.1120.0444

Airline revenue management is about identifying the maximum revenue seat allocation policies. Since a major loss in revenue results from cancellations and no-show passengers, over the years overbooking has received a significant attention in the literature. In this study, we propose new models for static and dynamic single-leg overbooking problems. In the static case, we introduce computationally tractable models that give upper and lower bounds for the optimal expected revenue. In the dynamic case, we propose a new dynamic programming model, which is based on two streams of arrivals. The first stream corresponds to the booking requests and the second stream represents the cancellations. We also conduct simulation experiments to illustrate the proposed models and the solution methods.