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Multiperiod Airline Overbooking with a Single Fare Class

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  • Richard E. Chatwin

    (Applied Decision Analysis, Inc., Menlo Park, California)

Abstract

Consider a multiperiod airline overbooking problem that relates to a single-leg flight and a single service class. Passengers may cancel their reservations at any time, including being no-shows at flight-time. At that time, the airline bumps passengers in excess of flight capacity and pays a penalty for so doing. We give conditions on the fares, refunds, and distributions of passenger demand for reservations and cancellations in each period, and on the bumping penalty function, that ensure that a booking-limit policy is optimal, i.e., in each period the airline accepts reservation requests up to a booking limit if the number of initial reservations is less than that booking limit, and declines reservation requests otherwise. The optimal booking limits are easily computed. We give conditions under which the optimal booking limits are monotone in the time to flight departure. The model is applied to the discount allocation problem in which lower fare classes book prior to higher fare classes.

Suggested Citation

  • Richard E. Chatwin, 1998. "Multiperiod Airline Overbooking with a Single Fare Class," Operations Research, INFORMS, vol. 46(6), pages 805-819, December.
    • Handle: RePEc:inm:oropre:v:46:y:1998:i:6:p:805-819
    DOI: 10.1287/opre.46.6.805
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    References listed on IDEAS

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    3. Chatwin, Richard E., 2000. "Optimal dynamic pricing of perishable products with stochastic demand and a finite set of prices," European Journal of Operational Research, Elsevier, vol. 125(1), pages 149-174, August.
    4. Huseyin Topaloglu & S. Ilker Birbil & J. B. G. Frenk & Nilay Noyan, 2012. "Tractable Open Loop Policies for Joint Overbooking and Capacity Control Over a Single Flight Leg with Multiple Fare Classes," Transportation Science, INFORMS, vol. 46(4), pages 460-481, November.
    5. Alec Morton, 2006. "Structural properties of network revenue management models: An economic perspective," Naval Research Logistics (NRL), John Wiley & Sons, vol. 53(8), pages 748-760, December.
    6. Syed Asif Raza & Rafi Ashrafi & Ali Akgunduz, 2020. "A bibliometric analysis of revenue management in airline industry," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(6), pages 436-465, December.
    7. Dan Zhang & William L. Cooper, 2005. "Revenue Management for Parallel Flights with Customer-Choice Behavior," Operations Research, INFORMS, vol. 53(3), pages 415-431, June.
    8. Nurşen Aydın & Ş. İlker Birbil & Hüseyin Topaloğlu, 2017. "Delayed Purchase Options in Single-Leg Revenue Management," Transportation Science, INFORMS, vol. 51(4), pages 1031-1045, November.
    9. P-S You, 2003. "Dynamic pricing of inventory with cancellation demand," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(10), pages 1093-1101, October.
    10. Nurşen Aydın & Ş. İlker Birbil & J. B. G. Frenk & Nilay Noyan, 2013. "Single-Leg Airline Revenue Management with Overbooking," Transportation Science, INFORMS, vol. 47(4), pages 560-583, November.
    11. Magdalena A. K. Lang & Catherine Cleophas & Jan Fabian Ehmke, 2021. "Anticipative Dynamic Slotting for Attended Home Deliveries," SN Operations Research Forum, Springer, vol. 2(4), pages 1-39, December.
    12. Richard E. Chatwin, 1999. "Continuous-Time Airline Overbooking with Time-Dependent Fares and Refunds," Transportation Science, INFORMS, vol. 33(2), pages 182-191, May.
    13. Fukui, Hideki & Nagata, Koki, 2020. "How do passengers react to airlines’ overbooking strategies? Evidence from the US airlines," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 242-255.
    14. J. B. G. Frenk & Behrooz Pourghannad & Semih O. Sezer, 2017. "A Static Model in Single Leg Flight Airline Revenue Management," Transportation Science, INFORMS, vol. 51(1), pages 214-232, February.
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