Application of modified nested and dynamic class allocation models for cruise line revenue management

Abstract

The cruise line industry, which is among the fastest growing sectors in the leisure travel market, has received comparatively little public research attention from revenue management experts compared to its counterparts, such as airlines. This paper investigates the unique characteristics of cruise line inventory, and discusses how advanced revenue management practices can be applied and adapted to cruise inventory based on its unique character. In particular, we have undertaken an examination of the means by which nested class allocation (NCA) and dynamic class allocation (DCA) inventory control can be applied to cruise inventory and, using available historical booking data, tested the viability and benefits that can be derived under a simulated reservation process using these solutions both independently and in concert. The NCA and DCA methods can be adapted and applied to cruise line inventory revenue management and we predict that it is reasonable to anticipate an average 4.2–6.3 per cent increase in revenue that should fall to bottom line profitability. For a multi-billion dollar industry with reported annual sales of $12.5bn, this marginal increase in profitability translates into between $500m and nearly $800m per year.