A network revenue management model with capacity allocation and overbooking

Abstract

In this paper, based on the single-leg revenue management, we develop a network revenue management model to jointly make the capacity allocation and overbooking decisions. In our model, the factors such as no-show, late cancellation, and denied boarding are taken into account. Both no-show and late cancellation have uncertainties. Therefore, we make use of a stochastic chance constrained integer programming to formulate the capacity allocation and overbooking problem. The model can be converted to determined integer programming to be solved by Monte Carlo algorithm. At last, in order to test the validity and feasibility of the model, we conduct computational experiments. We demonstrate that the model that is able to effectively avoid the economic loss by no-show, late cancellation or denied boarding, while keeping the expected revenue of airlines stable.