On the optimal control problem for single leg airline revenue management with overbooking

Official URL: http://192.168.1.20/record=b1479248 (Table of Contents)

Charging identical seats with different prices is a common practice for airline companies. In that regard one of the main concerns for airline managements is the optimal allocation/partition of the plane capacity between multiple fare classes. This thesis examines the seat allocation problem of airline revenue management and proposes a new model. Due to the occurrence of cancellations and no-shows, we also allow overbooking in order to compensate the revenue loss of empty seats. We study a continuous time model in which the objective is to maximize expected revenue consisting of the fares collected minus the cancellation and overbooking costs. In our model customers arrive according to a nonhomogeneous Poisson process while the time to cancellation of each reservation follows an exponential distribution. An optimal policy is found using dynamic programming and this policy is compared with other policies known in the literature by means of simulation.