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A Dynamic Airline Seat Inventory Control Model and Its Optimal Policy

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  • Youyi Feng

    (Department of Systems Engineering and Engineering Management, The Chinese University of Hong Kong, Shatin, NT, Hong Kong)

  • Baichun Xiao

    (Department of Management, Long Island University, C. W. Post, Brookville, New York, 11548)

Abstract

We consider an airline seat inventory control problem with multiple origins, one hub, and one destination. Passengers from the origins fly to the destination via the hub. Seat capacity of the hub-destination flight is fixed. Demands at origins are assumed to obey the Poisson process. To maximize the expected revenue, management faces decisions on allocating seats among competing origin-destination routes. This study presents a stochastic control model and develops optimal control rules. The basic model is subsequently distended to consider multiple fares on each route, time-dependent demands, and booking control on an extended network. A numerical example shows that optimal seat control is simple and efficient.

Suggested Citation

  • Youyi Feng & Baichun Xiao, 2001. "A Dynamic Airline Seat Inventory Control Model and Its Optimal Policy," Operations Research, INFORMS, vol. 49(6), pages 938-949, December.
    • Handle: RePEc:inm:oropre:v:49:y:2001:i:6:p:938-949
    DOI: 10.1287/opre.49.6.938.10026
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    References listed on IDEAS

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    2. Sato, Kimitoshi, 2019. "Price Trends and Dynamic Pricing in Perishable Product Market Consisting of Superior and Inferior Firms," European Journal of Operational Research, Elsevier, vol. 274(1), pages 214-226.
    3. Ge, Yanming & Xu, Yifan & Dai, Yue, 2010. "Overbooking with bilateral transference in parallel flights," International Journal of Production Economics, Elsevier, vol. 128(2), pages 577-585, December.
    4. 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.
    5. Tim Dittmer & Bob Carbaugh, 2014. "Major League Baseball: Dynamic Ticket Pricing and Measurement Costs," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 14(1), pages 44-57, Fall.
    6. Xiao, Baichun & Yang, Wei, 2010. "A revenue management model for products with two capacity dimensions," European Journal of Operational Research, Elsevier, vol. 205(2), pages 412-421, September.
    7. Huang, Yiqian & Ge, Yanming & Zhang, Xiandong & Xu, Yifan, 2013. "Overbooking for parallel flights with transference," International Journal of Production Economics, Elsevier, vol. 144(2), pages 582-589.
    8. Chew, Ek Peng & Lee, Chulung & Liu, Rujing, 2009. "Joint inventory allocation and pricing decisions for perishable products," International Journal of Production Economics, Elsevier, vol. 120(1), pages 139-150, July.
    9. Feng, Youyi & Xiao, Baichun, 2006. "Integration of pricing and capacity allocation for perishable products," European Journal of Operational Research, Elsevier, vol. 168(1), pages 17-34, January.
    10. Wen, Xiaoqin & Xu, Chen & Hu, Qiying, 2016. "Dynamic capacity management with uncertain demand and dynamic price," International Journal of Production Economics, Elsevier, vol. 175(C), pages 121-131.
    11. Gabriel Bitran & René Caldentey, 2003. "An Overview of Pricing Models for Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 5(3), pages 203-229, August.
    12. Hu, Qiying & Wei, Yihua & Xia, Yusen, 2010. "Revenue management for a supply chain with two streams of customers," European Journal of Operational Research, Elsevier, vol. 200(2), pages 582-598, January.
    13. Feng, Youyi & Xiao, Baichun, 2006. "A continuous-time seat control model for single-leg flights with no-shows and optimal overbooking upper bound," European Journal of Operational Research, Elsevier, vol. 174(2), pages 1298-1316, October.
    14. Siyuan Yu & Chenlong Xu & Zhikang Zhai & Yuefeng Zheng & Yu Shen, 2024. "Differential Pricing Strategies for Airport Shuttles: A Study of Shanghai Based on Customized Bus Ticketing Data," Sustainability, MDPI, vol. 16(16), pages 1-19, August.
    15. Cynthia Barnhart & Peter Belobaba & Amedeo R. Odoni, 2003. "Applications of Operations Research in the Air Transport Industry," Transportation Science, INFORMS, vol. 37(4), pages 368-391, November.
    16. Chen, Shaoxiang & Gallego, Guillermo & Li, Michael Z.F. & Lin, Bing, 2010. "Optimal seat allocation for two-flight problems with a flexible demand segment," European Journal of Operational Research, Elsevier, vol. 201(3), pages 897-908, March.
    17. Ben Li & Xiaolong Guo & Liang Liang, 2024. "Optimal pricing decision and capacity allocation of opaque selling in airline revenue management," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 23(4), pages 356-368, August.

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