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Optimal overbooking strategies in the airlines using dynamic programming approach in continuous time

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  • Alavi Fard, Farzad
  • Sy, Malick
  • Ivanov, Dmitry

Abstract

We propose a novel approach to solve the long-standing challenge of airline overbooking management. We solve the problem using dynamic programming with an industrial setting characterised as near-to-perfect competition where airlines strategically overbook their flights to control their market shares instead of a more conventional setting with a revenue maximisation. The theorised optimisation problem is constructed using a terminal utility criterion and with the application of the Hamilton-Jacobi-Bellman equation. The analysis expands on four most commonly applicable overbooking strategies, and the results provide guidance on how airlines can choose a strategy to pursue an optimisation solution best suited to them.

Suggested Citation

  • Alavi Fard, Farzad & Sy, Malick & Ivanov, Dmitry, 2019. "Optimal overbooking strategies in the airlines using dynamic programming approach in continuous time," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 384-399.
    • Handle: RePEc:eee:transe:v:128:y:2019:i:c:p:384-399
    DOI: 10.1016/j.tre.2019.07.001
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