Abstract
We reintroduce an expected revenue maximization formulation for airline seat allocation. We present a numerical method to find the exact solution to the integer programing problem. We further show that when this method is applied to a nested fare structure, it constitutes a heuristic method which has far better performance in an unrestricted fare environment, where fare buckets are completely undifferentiated, compared to EMSRa, EMSRb and EMSRb-MR. With use of simulation, we show that this method can recapture a significant portion of the potential revenue loss when restrictions are removed, while its performance in a fully differentiated environment is only marginally inferior compared to other methods. This method is also applicable to hotels and cruise lines where not only are there fewer “fences” around different offered rates, but also there is a greater tendency for consumers to buy down since most bookings are fully refundable.
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