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

Author

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  • Garrett van Ryzin

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Jeff McGill

    (School of Business, Queen's University, Kingston, Ontario, Canada)

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).

Suggested Citation

  • Garrett van Ryzin & Jeff McGill, 2000. "Revenue Management Without Forecasting or Optimization: An Adaptive Algorithm for Determining Airline Seat Protection Levels," Management Science, INFORMS, vol. 46(6), pages 760-775, June.
    • Handle: RePEc:inm:ormnsc:v:46:y:2000:i:6:p:760-775
    DOI: 10.1287/mnsc.46.6.760.11936
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    References listed on IDEAS

    as
    1. Jeffrey I. McGill & Garrett J. van Ryzin, 1999. "Revenue Management: Research Overview and Prospects," Transportation Science, INFORMS, vol. 33(2), pages 233-256, May.
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